Note: Certain statements in this quarterly report may be regarded as "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, and may qualify for the safe harbor provided for in Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements represent the Company's expectations and beliefs concerning future events, and no assurance can be given that the results described in this quarterly report will be achieved. These forward-looking statements can generally be identified by the use of statements that include words such as "anticipate," "believe," "could," "estimate," "expect," "foresee," "goal," "intend," "likely," "may," "plan," "project," "should," "target," "will" or other similar words or phrases. All forward-looking statements contained herein are based upon information available to the Company on the date of this quarterly report. Except as may be required under applicable law, the Company does not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company's control, that could cause actual results to differ materially from the results discussed in the forward-looking statements. The factors and assumptions upon which any forward-looking statements herein are based are subject to risks and uncertainties which include, among others:

† economic changes nationally or in the Company's local markets, including volatility and increases in interest rates, the impact of government stimulus plans, inflation, changes in consumer demand and confidence levels and the state of the market for homes in general;

† instability and uncertainty in the mortgage lending market, including revisions to underwriting standards for borrowers;

† the availability and cost of land and the future value of land held or under development;

† increased land development costs on projects under development;

† shortages of skilled labor or raw materials used in the production of houses;

† increased prices for labor, land and raw materials used in the production of houses;

† increased competition;

† failure to anticipate or react to changing consumer preferences in home design;

† increased costs and delays in land development or home construction resulting from adverse weather conditions;

† potential delays or increased costs in obtaining necessary permits as a result of changes to laws, regulations or governmental policies (including those that affect zoning, density, building standards and the environment);

† delays in obtaining approvals from applicable regulatory agencies and others in connection with the Company's communities and land activities;

† changes in the Company's effective tax rate and assumptions and valuations related to its tax accounts;

† the risk factors set forth in the Company's most recent Annual Report on Form 10-K; and

† other factors over which the Company has little or no control.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

Results of Operations

Overview

The Company consists of six operating business segments: four geographically determined homebuilding regions; financial services; and corporate. All of the Company's business is conducted and located in the United States. The Company's operations span all significant aspects of the homebuying process-from design, construction and sale to mortgage origination, title insurance, escrow and insurance services. The homebuilding operations are, by far, the most substantial part of its business, comprising approximately 96 percent of consolidated revenues for the three months ended September 30, 2009. The homebuilding segments generate nearly all of their revenues from the sale of completed homes, with a lesser amount from the sale of land and lots.

During 2009, unsettled credit markets, rising unemployment, poor consumer confidence resulting from the global recession, high foreclosure activity and low demand for new housing contributed to the Company's reported decreases in sales volume and home prices. During the quarter ended September 30, 2009, the Company focused on generating cash, maintaining a strong balance sheet and returning to profitability. During the quarter, the Company generated $40.7 million in operating cash; lowered selling, general and administrative expenses by $22.4 million, versus the same period in the prior year; and increased its efforts to locate and purchase a limited number of higher margin communities to replace those that are closing out. As a consequence of the Company's cash preservation efforts, a slow decline in land prices relative to home price declines and an emphasis on closing communities with a low number of remaining homes to sell, the Company operated from 32.5 percent fewer selling communities during the third quarter ended September 30, 2009, than it did in the third quarter of 2008, and its inventory of lots controlled as of September 30, 2009, is down 12.0 percent from December 31, 2008. In addition, the Company owned 46.4 percent fewer models at September 30, 2009, compared to September 30, 2008, and had 37.8 percent fewer started and unsold homes at September 30, 2009, compared to September 30, 2008. Replacing communities in selective markets is rapidly becoming one of the Company's greatest challenges and priorities as it looks for opportunities to return to growth and profitability.

Due to price reductions and sales incentives, evaluation of the Company's inventory through quarterly impairment analyses during the quarter ended September 30, 2009, resulted in $39.1 million of inventory and other valuation adjustments. (See "Homebuilding Overview" for a comparison between the number of communities impaired and the number of total communities.) In addition, the Company recorded a valuation allowance totaling $20.7 million against its deferred tax assets during the quarter ended September 30, 2009.

For the three months ended September 30, 2009, the Company reported a consolidated net loss of $52.5 million, or $1.20 per diluted share, compared to $65.7 million, or $1.54 per diluted share, for the same period in 2008. The decrease in losses for 2009, compared to 2008, was primarily due to lower inventory and other valuation adjustments, partially offset by declines in closings and home prices.

The Company's revenues were $327.8 million for the third quarter of 2009, down 39.7 percent from $543.8 million for the third quarter of 2008. This decrease was primarily attributable to a decline in closings, average closing price and mortgage originations. Revenues for the homebuilding and financial services segments were $315.8 million and $12.1 million, respectively, for the third quarter of 2009, compared to $526.2 million and $17.6 million, respectively, for the same period in 2008.

As a result of the 32.5 percent reduction in the Company's selling communities and general market declines, new orders decreased 1.1 percent to 1,270 units for the third quarter ended September 30, 2009, from 1,284 units for the same period in 2008. New order dollars decreased 7.7 percent for the third quarter of 2009, compared to the third quarter of 2008, as a result of these same factors, plus declining home prices. As a result of decreased prices, low interest rates and tax incentives, the affordability of homes in most of the Company's markets improved. Cancellation rates during the quarter have begun to approach more conventional levels, and sales per open community have risen during the quarter ended September 30, 2009.

Management's Discussion and Analysis of

Financial Condition and Results of Operations

Consolidated inventories owned by the Company, which include homes under construction, land under development and improved lots, and inventory held-for-sale declined 21.1 percent to $852.8 million at September 30, 2009, from $1.1 billion at December 31, 2008. Homes under construction decreased by 1.8 percent to $456.5 million at September 30, 2009, compared to $464.8 million at December 31, 2008. Land under development and improved lots declined by 40.1 percent to $327.6 million at September 30, 2009, compared to $547.3 million at December 31, 2008. Inventory held-for-sale decreased 0.4 percent and totaled $68.7 million at September 30, 2009, compared to $69.0 million at December 31, 2008.

The Company did not repurchase any of its outstanding common stock during the first nine months of 2009. At September 30, 2009, outstanding shares were 43,813,835, versus 42,754,467 at December 31, 2008.

The Company ended the quarter with $744.3 million in cash, cash equivalents and marketable securities, and it has no senior debt maturities until 2012. Its investments in joint ventures at September 30, 2009, were not significant. The Company's net debt-to-capital ratio, including marketable securities, was 17.1 percent at September 30, 2009, compared to 33.5 percent at December 31, 2008. The net debt-to-capital ratio, including marketable securities, is calculated as debt, net of cash, cash equivalents and marketable securities, divided by the sum of debt and total stockholders' equity, net of cash, cash equivalents and marketable securities. As a result of the revaluation of inventory, deferred tax assets and other losses from operations, stockholders' equity per share declined by 26.9 percent to $12.40 at September 30, 2009, compared to $16.97 at December 31, 2008.

The Company believes that while access to capital will likely be constrained in the early stages of a recovery, homebuilders with the strongest balance sheets will have the best chance of gaining access to capital and taking advantage of market opportunities. To help the Company participate in the initial stages of a recovery, a limited liability company was formed with Oaktree Capital in January 2009, the purpose of which is to jointly acquire and develop distressed and other residential real estate assets. In addition, the Company issued $230.0 million of senior notes due May 2017 during the second quarter of 2009. The Company believes that its cash and investment balances, low net debt-to-capital ratio, manageable inventory pipelines and access to land will allow it to take advantage of new opportunities as market conditions improve.

Homebuilding Overview

The Company's homes are built on-site and marketed in four major geographic
regions, or segments.  (See Note 4, "Segment Information.")  The Company
operated in the following metropolitan areas at September 30, 2009:



Region/Segment   Major Markets Served
North            Baltimore, Chicago, Delaware, Indianapolis, Minneapolis and
                 Washington, D.C.
Southeast        Atlanta, Charleston, Charlotte, Jacksonville, Myrtle Beach,
                 Orlando and Tampa
Texas            Austin, Dallas, Houston and San Antonio
West             California's Central Valley, California's Coachella Valley,
                 California's Inland Empire, Denver, Las Vegas and Phoenix

The combined homebuilding operations reported pretax losses of $48.5 million for the third quarter of 2009, compared to $72.4 million for the third quarter of 2008. Homebuilding results in 2009 improved from 2008 primarily due to lower inventory and other valuation adjustments and write-offs, partially offset by decreases in closings and home prices.

Management's Discussion and Analysis of

Financial Condition and Results of Operations



STATEMENTS OF EARNINGS

                                   THREE MONTHS ENDED SEPTEMBER 30,             NINE MONTHS ENDED SEPTEMBER 30,
(in thousands, except
units )                                 200 9                  2008                200 9                   2008
REVENUES
Housing                      $      315,215        $      512,305       $      835,406        $     1,372,719
Land and other                          545                13,931                  958                 25,400
TOTAL REVENUES                      315,760               526,236              836,364              1,398,119

EXPENSES
Cost of sales
Housing                             281,380               451,724              765,939              1,207,433
Land and other                          587                21,180                1,205                 31,574
Valuation adjustments
and write-offs                       39,137                64,651              135,621                229,691
Total cost of sales                 321,104               537,555              902,765              1,468,698
(Earnings) loss from
unconsolidated joint
ventures                               (167 )                 (82 )               (230 )               42,625
Selling, general and
administrative                       38,698                61,120              116,663                189,967
Interest                              4,643                     -                7,452                      -
TOTAL EXPENSES                      364,278               598,593            1,026,650              1,701,290

PRETAX LOSS                  $      (48,518 )      $      (72,357 )     $     (190,286 )      $      (303,171 )
Closings (units)                      1,323                 2,017                3,463                  5,388
Housing gross profit
margins                                (0.2 )  %              0.8   %             (7.3 )  %              (4.4 ) %
Selling, general and
administrative                         12.3    %             11.6   %             13.9    %              13.6   %

As required by ASC 360, inventory is reviewed for potential write-downs on an ongoing basis. ASC 360 requires that, in the event that impairment indicators are present and undiscounted cash flows indicate that the carrying amount of an asset is not recoverable, impairment charges are required to be recorded if the fair value of the asset is less than its carrying amount. The Company reviews all communities on a quarterly basis for changes in events or circumstances indicating signs of impairment.

Examples of events or changes in circumstances include, but are not limited to:
price declines resulting from sustained competitive pressures; a change in the manner in which the asset is being used; a change in assessments by a regulator or municipality; cost increases; the expectation that, more likely than not, an asset will be sold or disposed of significantly before the end of its previously estimated useful life; or the impact of local economic or macroeconomic conditions, such as employment or housing supply, on the market for a given product. Signs of impairment may include, but are not limited to: very low or negative profit margins; the absence of sales activity in an open community; and/or significant price differences for comparable parcels of land held-for-sale. Due to the fact that estimates and assumptions included in cash flow models are based on historical results and projected trends, they do not anticipate unexpected changes in market conditions that may lead to additional impairment charges in the future. Valuation adjustments are recorded against homes completed or under construction, land under development and improved lots when analyses indicate that the carrying values are greater than the fair values. (See Note 7, "Housing Inventories.")

The following table provides the total number of communities impaired during the three- and nine-month periods ended September 30, 2009 and 2008:

                THREE MONTHS ENDED        NINE MONTHS ENDED
                      SEPTEMBER 30,            SEPTEMBER 30,
             2009    2008     % CHG    2009    2008    % CHG
North           4      14    (71.4) %    23      29   (20.7) %
Southeast      11       8      37.5      35      28     25.0
Texas           3       4    (25.0)       3       8   (62.5)
West            -      14   (100.0)      12      37   (67.6)
Total          18      40    (55.0) %    73     102   (28.4) %

Management's Discussion and Analysis of

Financial Condition and Results of Operations



The following table provides the Company's total number of communities,
including selling, held-for-sale or future development at September 30, 2009 and
2008:

            2009   2008    % CHG
North         67     91   (26.4) %
Southeast    109    132   (17.4)
Texas         84    101   (16.8)
West          27     49   (44.9)
Total        287    373   (23.1) %

At September 30, 2009, there were 62 of these communities held-for-sale, of which 35 communities have less than 20 lots remaining. Due to continued pressure on home prices symptomatic of excess home inventories and increasingly competitive home pricing in many markets, the Company recorded inventory impairment charges of $38.4 million and $60.4 million during the three months ended September 30, 2009 and 2008, respectively, in order to reduce the carrying value of the impaired communities to their estimated fair value. Approximately 87 percent of these impairment charges were recorded to residential land and lots and land held for development, while approximately 13 percent of these charges were recorded to residential construction in progress and finished homes in inventory. At September 30, 2009, the fair value of the Company's inventory subject to valuation adjustments of $38.4 million during the quarter, net of impairments, was $30.0 million. Inventory and other impairment charges and write-offs of deposits and acquisition costs reduced total housing gross profit margins by 11.0 percent in the third quarters of 2009 and 2008. Should market conditions continue to deteriorate or costs increase, it is possible that the Company's estimates of undiscounted cash flows from its communities could decline, resulting in additional future inventory impairment charges.

The Company periodically writes off earnest money deposits and feasibility costs related to land and lot option contracts that it no longer plans to pursue.
During the quarters ended September 30, 2009 and 2008, the Company wrote off $699,000 and $4.3 million, respectively, of earnest money deposits and feasibility costs related to land purchase option contracts that it did not pursue. The Company wrote off $1.1 million and $16.3 million of earnest money deposits and feasibility costs for the nine-month periods ended September 30, 2009 and 2008, respectively. Should weak homebuilding market conditions persist and the Company be unsuccessful in renegotiating certain land option purchase contracts, it may write off additional earnest money deposits and feasibility costs in future periods.

Three months ended September 30, 2009, compared to three months ended September 30, 2008

The homebuilding segments reported pretax losses of $48.5 million for the third quarter of 2009, compared to $72.4 million for the same period in the prior year. Homebuilding results for the third quarter of 2009 improved from the same period in 2008 primarily due to lower inventory and other valuation adjustments and write-offs, partially offset by decreases in closings and home prices.

Homebuilding revenues were $315.8 million for the third quarter of 2009, compared to $526.2 million for the third quarter of 2008, a 40.0 percent decline, primarily due to a 34.4 percent decrease in closings and a 6.3 percent decline in the average closing price of a home. Sales incentives averaged 14.7 percent for the third quarter of 2009, versus 13.8 percent for the third quarter of 2008.

Homebuilding revenues for the third quarter of 2009 included $545,000from land sales, compared to revenues of $13.9 million for the third quarter of 2008, which contributed net pretax losses of $42,000 and $7.2 million in the third quarters of 2009 and 2008, respectively. The gross profit margin from land sales was negative 7.7 percent for the three months ended September 30, 2009, compared to negative 52.0 percent for the same period in the prior year. Fluctuations in revenues and gross profit percentages from land sales were a result of local market conditions, land portfolios and income tax carryback rules. The Company generally purchases land and lots with

Management's Discussion and Analysis of

Financial Condition and Results of Operations

the intent to build homes on those lots and sell them; however, the Company occasionally sells a portion of its land to other homebuilders or others.

Housing gross profit margins averaged negative 0.2 percent for the third quarter of 2009, compared to 0.8 percent for the same period in 2008. This decrease was primarily attributable to an increase in price concessions and sales incentives and price reductions that related to home deliveries, partially offset by lower inventory and other valuation adjustments.

Selling, general and administrative expenses were 12.3 percent of revenue for the third quarter of 2009, compared to 11.6 percent of revenue for the same period in 2008. This increase in the selling, general and administrative expense ratio was primarily attributable to a decline in revenues, partially offset by cost-saving initiatives and lower marketing and advertising expenditures per unit. Selling, general and administrative expense dollars decreased $22.4 million for the third quarter of 2009, versus the same period in 2008.

Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $14.5 million and $12.0 million for the three months ended September 30, 2009 and 2008, respectively. During the third quarter of 2009, the homebuilding segments recorded $4.6 million of interest expense, while all interest incurred for the same period in 2008 was capitalized, resulting in no interest expense being recorded during this period due to development and construction activity.

Nine months ended September 30, 2009, compared to nine months ended September 30, 2008

The homebuilding segments reported pretax losses of $190.3 million for the first nine months of 2009, compared to $303.2 million for the same period in the prior year. Homebuilding results for the first nine months of 2009 improved from the same period in 2008 primarily due to lower inventory and other valuation adjustments and write-offs, partially offset by declines in closings and home prices.

Homebuilding revenues were $836.4 million for the first nine months of 2009, compared to $1.4 billion for the first nine months of 2008, a 40.2 percent decline, primarily due to a 35.7 percent decrease in closings and a 5.5 percent decline in the average closing price of a home.

Homebuilding revenues for the first nine months of 2009 included $958,000from land sales, compared to revenues of $25.4 million for the same period in 2008, which contributed net pretax losses of $247,000 and $6.2 million in the first nine months of 2009 and 2008, respectively. The gross profit margin from land sales was negative 25.8 percent for the nine months ended September 30, 2009, compared to negative 24.3 percent for the same period in the prior year.

Housing gross profit margins averaged negative 7.3 percent for the nine months ended September 30, 2009, compared to negative 4.4 percent for the same period in 2008. This decrease was due to an increase in price concessions and sales incentives, in addition to price reductions that related to home deliveries, partially offset by lower inventory and other valuation adjustments.

Selling, general and administrative expenses were 13.9 percent of revenue for the nine months ended September 30, 2009, compared to 13.6 percent of revenue for the same period in the prior year. This increase in the selling, general and administrative expense ratio was primarily attributable to a decline in revenues, partially offset by cost-saving initiatives and lower marketing and advertising expenditures per unit. Selling, general and administrative expense dollars decreased $73.3 million for the first nine months of 2009, versus the same period in 2008.

Interest, which was incurred principally to finance land acquisitions, land development and home construction, totaled $39.3 million for the nine months ended September 30, 2009, compared to $35.5 million for the same

Management's Discussion and Analysis of

Financial Condition and Results of Operations

period in 2008. During the first nine months of 2009, the homebuilding segments recorded $7.5 million of interest expense, while all interest incurred for the same period in 2008 was capitalized, resulting in no interest expense being recorded during this period due to development and construction activity.

Homebuilding Segment Information

Conditions have been most challenging in geographical areas that have previously experienced the highest price appreciation. These areas were primarily in the California, Chicago, Florida, Las Vegas, Phoenix and Washington, D.C., markets. As a result of decreased demand, changes in buyer perception and foreclosure activity, the excess supply of housing inventory has been greater in these areas. An attempt to sustain market share, reduce inventory investment and maintain sales volume has caused the Company to experience the highest levels of sales discounting and impairments in these markets. Of the Company's total lots with valuation adjustments during the third quarter ended September 30, 2009, 21.8 percent were impaired in the North, 69.2 percent in the Southeast and 9.0 percent in Texas. There were no lots impaired in the West during the third quarter ended September 30, 2009, as a result of the stabilization of price and sales volumes in fewer housing communities within those markets.

The following table provides a summary of the Company's inventory and other impairments taken during the three and nine months ended September 30, 2009 and 2008:

                                           THREE MONTHS ENDED           NINE MONTHS ENDED
                                                SEPTEMBER 30,               SEPTEMBER 30,
(in thousands)                              2009         2008          2009          2008
NORTH
Inventory valuation adjustments      $     7,801    $  29,851     $  46,029     $  74,856
Option deposit and feasibility
cost write-offs                               75          730         1,225         3,076
Joint venture and other*
impairments                                    -            -             -        35,858
Total                                      7,876       30,581        47,254       113,790

SOUTHEAST
Inventory valuation adjustments           29,423        9,156        68,470        57,325
Option deposit and feasibility
. . .