10-Q

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended    June 30, 2005     

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From                      To                     

Commission file number    1-14122 

D.R. Horton, Inc.

(Exact name of registrant as specified in its charter)

DELAWARE	75-2386963
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

301 Commerce Street, Suite 500, Fort Worth, Texas	76102
(Address of principal executive offices)	(Zip Code)

(817) 390-8200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common stock, $.01 par value — 312,824,500 shares as of August 3, 2005

This report contains 35 pages.

D.R. HORTON, INC. AND SUBSIDIARIES

FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION.
ITEM 1.	Financial Statements.
	Consolidated Balance Sheets – June 30, 2005 and September 30, 2004.		3
	Consolidated Statements of Income – Three and Nine Months Ended June 30, 2005 and 2004.		4
	Consolidated Statements of Cash Flows – Nine Months Ended June 30, 2005 and 2004.		5
	Notes to Consolidated Financial Statements.		6-21
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		22-32
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk.		33
ITEM 4.	Controls and Procedures.		34
PART II.	OTHER INFORMATION.
ITEM 6.	Exhibits.		34
SIGNATURES.			35
Third Amendment to Amended/Restated Credit Agreement
Seventh Omnibus Agreement
Executive Compensation Summary
Statement of Computation of Ratio of Earnings to Fixed Charges
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	June 30,			September 30,
	2005			2004
	(In millions)
	(Unaudited)
ASSETS
Homebuilding:
Cash and cash equivalents	$	109.8		$	480.1
Inventories:
Construction in progress and finished homes		3,945.3			2,878.5
Residential lots — developed and under development		4,485.6			3,529.0
Land held for development		6.3			6.2
Consolidated land inventory not owned		185.2			153.7
		8,622.4			6,567.4
Property and equipment (net)		97.8			91.9
Earnest money deposits and other assets		706.7			576.6
Goodwill		578.9			578.9
		10,115.6			8,294.9
Financial Services:
Cash and cash equivalents		62.0			37.9
Mortgage loans held for sale		828.7			623.3
Other assets		38.2			29.1
		928.9			690.3
	$	11,044.5		$	8,985.2
LIABILITIES
Homebuilding:
Accounts payable	$	722.6		$	585.2
Accrued expenses and other liabilities		929.3			756.9
Notes payable		3,654.7			3,006.5
		5,306.6			4,348.6
Financial Services:
Accounts payable and other liabilities		16.8			16.8
Notes payable to financial institutions		708.4			492.7
		725.2			509.5
		6,031.8			4,858.1
Minority interests		192.4			166.4
STOCKHOLDERS’ EQUITY
Preferred stock, $.10 par value, 30,000,000 shares authorized, no shares issued		—			—
Common stock, $.01 par value, 400,000,000 shares authorized, 315,328,863 shares issued and 312,676,063 shares outstanding at June 30, 2005 and 236,028,696 shares issued and 233,375,896 shares outstanding at September 30, 2004		3.2			2.4
Additional capital		1,620.3			1,599.9
Retained earnings		3,255.7			2,417.3
Treasury stock, 2,652,800 shares at June 30, 2005 and September 30, 2004, at cost		(58.9	)		(58.9	)
		4,820.3			3,960.7
	$	11,044.5		$	8,985.2

See accompanying notes to consolidated financial statements.

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D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
				(In millions, except per share data)
				(Unaudited)
Homebuilding:
Revenues:
Home sales	$	3,277.1		$	2,695.5		$	8,432.9		$	7,080.7
Land/lot sales		32.4			46.2			177.5			117.8
		3,309.5			2,741.7			8,610.4			7,198.5
Cost of sales:
Home sales		2,413.7			2,086.8			6,279.8			5,490.0
Land/lot sales		17.0			29.1			105.4			72.4
		2,430.7			2,115.9			6,385.2			5,562.4
Gross profit:
Home sales		863.4			608.7			2,153.1			1,590.7
Land/lot sales		15.4			17.1			72.1			45.4
		878.8			625.8			2,225.2			1,636.1
Selling, general and administrative expense		302.0			244.3			826.7			679.5
Interest expense		—			—			—			3.3
Other (income)		(0.5	)		(7.4	)		(11.4	)		(7.1	)
		577.3			388.9			1,409.9			960.4
Financial Services:
Revenues		60.7			48.7			156.5			131.7
General and administrative expense		38.5			32.2			105.1			83.8
Interest expense		4.1			1.6			9.1			4.0
Other (income)		(9.0	)		(4.8	)		(22.0	)		(12.7	)
		27.1			19.7			64.3			56.6
INCOME BEFORE INCOME TAXES		604.4			408.6			1,474.2			1,017.0
Provision for income taxes		232.7			157.3			567.5			391.5
NET INCOME	$	371.7		$	251.3		$	906.7		$	625.5
Basic net income per common share	$	1.19		$	0.81		$	2.91		$	2.02
Net income per common share assuming dilution	$	1.17		$	0.80		$	2.85		$	1.98
Cash dividends declared per common share	$	0.09		$	0.06		$	0.2175		$	0.155

See accompanying notes to consolidated financial statements.

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D.R. HORTON, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Nine Months
	Ended June 30,
	2005			2004
	(In millions)
	(Unaudited)
OPERATING ACTIVITIES
Net income	$	906.7		$	625.5
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		39.2			34.4
Amortization of debt premiums, discounts and fees		3.1			5.0
Changes in operating assets and liabilities:
Increase in inventories		(2,003.8	)		(1,334.1	)
Increase in earnest money deposits and other assets		(133.3	)		(39.6	)
(Increase) decrease in mortgage loans held for sale		(205.4	)		71.9
Increase in accounts payable and other liabilities		292.6			73.9
NET CASH USED IN OPERATING ACTIVITIES		(1,100.9	)		(563.0	)
INVESTING ACTIVITIES
Net purchases of property and equipment		(44.7	)		(39.3	)
NET CASH USED IN INVESTING ACTIVITIES		(44.7	)		(39.3	)
FINANCING ACTIVITIES
Proceeds from notes payable		2,344.0			2,313.9
Repayment of notes payable		(1,497.8	)		(2,017.7	)
Proceeds from stock associated with certain employee benefit plans		21.5			11.5
Cash dividends paid		(68.3	)		(48.2	)
NET CASH PROVIDED BY FINANCING ACTIVITIES		799.4			259.5
DECREASE IN CASH AND CASH EQUIVALENTS		(346.2	)		(342.8	)
Cash and cash equivalents at beginning of period		518.0			582.9
Cash and cash equivalents at end of period	$	171.8		$	240.1
Supplemental disclosures of noncash activities:
Notes payable issued for inventory	$	17.8		$	63.8

See accompanying notes to consolidated financial statements.

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D.R. HORTON, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

June 30, 2005

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited, consolidated financial statements include the accounts of D.R. Horton, Inc. and all of its wholly-owned, majority-owned and controlled subsidiaries (the “Company”), as well as certain variable interest entities from which we are purchasing land or lots under option purchase contracts. All significant intercompany accounts, transactions and balances have been eliminated in consolidation. The statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Regulation S-X. In the opinion of management, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation have been included. These statements do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s annual report on Form 10-K for the fiscal year ended September 30, 2004. Certain reclassifications have been made in the prior year’s financial statements to conform to classifications used in the current year.

Historically, the homebuilding industry has experienced seasonal fluctuations; therefore, the operating results for the three-month and nine-month periods ended June 30, 2005 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2005.

Business - The Company is a national homebuilder that is engaged primarily in the construction and sale of single-family housing in 71 markets and 23 states in the United States. The Company designs, builds and sells single-family houses on lots developed by the Company and on finished lots which it purchases, ready for home construction. Periodically, the Company sells land and lots it has developed or bought. The Company also provides title agency and mortgage brokerage services to its homebuyers. The Company does not retain or service the mortgages that it originates but, rather, sells the mortgages and related servicing rights to investors.

Stock Split – In February 2005, the Company’s Board of Directors declared a four-for-three stock split (effected as a 33% stock dividend), paid on March 16, 2005 to common stockholders of record on March 1, 2005. The earnings per share and cash dividends declared per share for the three and nine months ended June 30, 2005 and 2004 reflect the effects of the stock split.

NOTE B — SEGMENT INFORMATION

The Company’s reportable business segments consist of homebuilding and financial services. Homebuilding is the Company’s core business, generating 98% of consolidated revenues during the nine months ended June 30, 2005 and 2004, and 96% and 94% of consolidated income before income taxes during the nine months ended June 30, 2005 and 2004, respectively. The homebuilding reporting segment is comprised of the aggregate of the Company’s regional homebuilding operations and generates most of its revenues from the sale of completed homes, with a lesser amount from the sale of land and lots. Approximately 85% and 84% of home sales revenues were generated from the sale of single-family detached homes for the nine months ended June 30, 2005 and 2004, respectively, and the remainder of home sales revenues were generated from the sale of attached homes, such as town homes, duplexes, triplexes and condominiums (including some mid-rise buildings), which share common walls and roofs. The financial services segment generates its revenues from originating and selling mortgages and collecting fees for title insurance agency and closing services.

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D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE C — EARNINGS PER SHARE

Basic earnings per share for the three months and nine months ended June 30, 2005 and 2004 is based on the weighted average number of shares of common stock outstanding. Diluted earnings per share is based on the weighted average number of shares of common stock and dilutive securities outstanding.

The following table sets forth the denominators used in the computation of basic and diluted earnings per share:

	Three Months Ended				Nine Months Ended
	June 30,				June 30,
	2005		2004		2005		2004
			(In millions)
Denominator for basic earnings per share— weighted average common shares		312.4		310.7		312.0		310.3
Effect of dilutive securities:
Employee stock options		5.9		5.4		5.8		5.7
Denominator for diluted earnings per share— adjusted weighted average common shares		318.3		316.1		317.8		316.0

In February 2005, the Company’s Board of Directors declared a four-for-three stock split (effected as a 33% stock dividend), paid on March 16, 2005 to common stockholders of record on March 1, 2005. The share amounts presented above reflect the effects of the four-for-three stock split.

All options outstanding during the three and nine months ended June 30, 2005 and 2004 were included in the computation of diluted earnings per share.

NOTE D – CONSOLIDATED LAND INVENTORY NOT OWNED

In the ordinary course of its homebuilding business, the Company enters into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Under such option purchase contracts, the Company will fund a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Under the terms of the option purchase contracts, many of the Company’s option deposits are non-refundable. Under the requirements of Financial Accounting Standards Board (FASB) Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46), certain of the Company’s option purchase contracts result in the acquisition of a variable interest in the entity holding the land parcel under option.

In applying the provisions of FIN 46, the Company evaluates those land and lot option purchase contracts with variable interest entities to determine whether the Company is the primary beneficiary based upon analysis of the variability of the expected gains and losses of the entity. Based on this evaluation, if the Company is the primary beneficiary of an entity with which the Company has entered into a land or lot option purchase contract, the variable interest entity is consolidated.

The consolidation of these variable interest entities and other inventory obligations added $185.2 million in land inventory not owned and minority interests related to entities not owned to the Company’s balance sheet at June 30, 2005. The Company’s obligations related to these land or lot option contracts are guaranteed by cash deposits totaling $18.8 million and performance letters of credit, promissory notes and surety bonds totaling $3.3 million. Creditors of these variable interest entities have no recourse against the Company.

At June 30, 2005, including the deposits with the variable interest entities above, the Company had deposits amounting to $284.0 million to purchase land and lots with a total remaining purchase price of $5.7 billion. For the variable interest entities which are unconsolidated because the Company is not subject to a majority of the risk of loss or entitled to receive a majority of the entities’ residual returns, the maximum exposure to loss is generally limited to the amounts of the Company’s option deposits, which totaled $218.4 million at June 30, 2005.

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D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE E – NOTES PAYABLE

The Company’s notes payable at their principal amounts, net of unamortized discount or premium, as applicable, consist of the following:

	June 30,		September 30,
	2005		2004
	(In millions)
Homebuilding:
Unsecured:
Revolving credit facility due 2008	$	50.0	$	—
10.5% senior notes due 2005, net		—		199.9
7.5% senior notes due 2007		215.0		215.0
5% senior notes due 2009, net		199.6		199.5
8% senior notes due 2009, net		384.0		383.8
9.375% senior notes due 2009, net		241.5		242.5
9.75% senior subordinated notes due 2010, net		149.2		149.2
4.875% senior notes due 2010, net		248.6		—
7.875% senior notes due 2011, net		198.8		198.7
9.375% senior subordinated notes due 2011, net		199.8		199.8
10.5% senior subordinated notes due 2011, net		150.4		150.9
8.5% senior notes due 2012, net		248.4		248.3
6.875% senior notes due 2013		200.0		200.0
5.875% senior notes due 2013		100.0		100.0
6.125% senior notes due 2014, net		197.3		197.2
5.625% senior notes due 2014, net		248.1		247.9
5.25% senior notes due 2015, net		297.8		—
5.625% senior notes due 2016, net		297.4		—
Other secured		28.8		73.8
	$	3,654.7	$	3,006.5
Financial Services:
Mortgage warehouse facility due 2006	$	308.4	$	267.7
Commercial paper conduit facility due 2006		400.0		225.0
	$	708.4	$	492.7

Homebuilding:

The Company has a $1.21 billion unsecured revolving credit facility, which includes a $350 million letter of credit sub-facility, that matures on March 25, 2008. The Company’s borrowing capacity under this facility is reduced by the amount of letters of credit outstanding. At June 30, 2005, the Company’s borrowing capacity from this facility was $1.04 billion. The facility is guaranteed by substantially all of the Company’s wholly-owned subsidiaries other than its financial services subsidiaries. Borrowings bear daily interest at rates based upon the London Interbank Offered Rate (LIBOR) plus a spread based upon the Company’s ratio of debt to tangible net worth and senior unsecured debt rating. The interest rate applicable to the revolving credit facility at June 30, 2005 was 4.6%. In addition to the stated interest rates, the revolving credit facility requires the Company to pay certain fees.

In October 2004, the Company issued $250 million principal amount of 4.875% senior notes due 2010. The notes, which are due January 15, 2010, with interest payable semi-annually, represent unsecured obligations of the Company. The Company may redeem the notes in whole at any time or in part from time to time, at a redemption price equal to the greater of 100% of their principal amount or the present value of the remaining scheduled payments on the redemption date, discounted at a rate equal to the yield to maturity of a United States Treasury security with a comparable maturity, plus 25 basis points (0.25%), plus, in each case, accrued interest. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discounts, is 5.1%.

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D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

In December 2004, the Company issued $300 million principal amount of 5.625% senior notes due 2016. The notes, which are due January 15, 2016, with interest payable semi-annually, represent unsecured obligations of the Company. The Company may redeem the notes in whole at any time or in part from time to time, at a redemption price equal to the greater of 100% of their principal amount or the present value of the remaining scheduled payments on the redemption date, discounted at a rate equal to the yield to maturity of a United States Treasury security with a comparable maturity, plus 30 basis points (0.30%), plus, in each case, accrued interest. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discounts, is 5.8%.

In February 2005, the Company issued $300 million principal amount of 5.25% senior notes due 2015. The notes, which are due February 15, 2015, with interest payable semi-annually, represent unsecured obligations of the Company. The Company may redeem the notes in whole at any time or in part from time to time, at a redemption price equal to the greater of 100% of their principal amount or the present value of the remaining scheduled payments on the redemption date, discounted at a rate equal to the yield to maturity of a United States Treasury security with a comparable maturity, plus 25 basis points (0.25%), plus, in each case, accrued interest. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs and discounts, is 5.4%.

On April 1, 2005, the Company repaid the $200 million principal amount of its 10.5% senior notes which were due on that date.

The bank credit facilities and the indentures for most of the senior and senior subordinated notes contain covenants which, taken together, limit investments in inventory, stock repurchases, cash dividends and other restricted payments, incurrence of indebtedness, asset dispositions and creation of liens, and require certain levels of tangible net worth. At June 30, 2005, under the most restrictive covenants, the additional debt the Company could incur would be limited to $3.1 billion, which included $1.04 billion available under the revolving credit facility. At that date, under the most restrictive covenants, $1.2 billion was available for restricted payments.

Financial Services:

In April 2005, the Company’s mortgage subsidiary renewed its $300 million mortgage warehouse loan facility payable to financial institutions, extending the maturity date to April 7, 2006 and increasing the amount that may be borrowed under the uncommitted accordion feature to $150 million. In June 2005, through amendment to the credit agreement, the Company exercised the accordion feature and obtained commitments from its lenders that increased the total size of the facility to $450 million. The mortgage warehouse facility is secured by certain mortgage loans held for sale and is not guaranteed by D.R. Horton, Inc. or any of the guarantors of its homebuilding debt. Borrowings bear daily interest at the 30-day LIBOR rate plus a fixed premium. The interest rate of the mortgage warehouse facility at June 30, 2005 was 4.2%.

The Company’s mortgage subsidiary also has a $500 million commercial paper conduit facility (the CP conduit facility), that expires on June 29, 2006. In June 2005, through amendment to the credit agreement, the Company increased the capacity available under this facility from $300 million to $500 million. The CP conduit facility is secured by certain mortgage loans held for sale and is not guaranteed by D.R. Horton, Inc. or any of the guarantors of its homebuilding debt. The mortgage loans pledged to secure the CP conduit facility are used as collateral for asset backed commercial paper issued by multi-seller conduits in the commercial paper market. The interest rate of the CP conduit facility at June 30, 2005 was 3.9%.

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D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE F – HOMEBUILDING INTEREST

The Company capitalizes homebuilding interest costs to inventory during development and construction. Capitalized interest is charged to cost of sales as the related inventory is delivered to the buyer. The following table summarizes the Company’s homebuilding interest costs incurred, charged to cost of sales, and expensed directly during the three-month and nine-month periods ended June 30, 2005 and 2004:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
	(In millions)
Capitalized interest, beginning of period	$	189.7		$	175.4		$	152.7		$	168.4
Interest incurred – homebuilding		68.8			59.7			204.7			177.7
Interest expensed:
Directly – homebuilding		—			—			—			(3.3	)
Amortized to cost of sales		(59.7	)		(65.4	)		(158.6	)		(173.1	)
Capitalized interest, end of period	$	198.8		$	169.7		$	198.8		$	169.7

NOTE G — WARRANTY

The Company provides its homebuyers a one-year comprehensive limited warranty for all parts and labor and a ten-year limited warranty for major construction defects. The Company’s warranty reserve is based upon historical warranty cost experience in each market in which it operates and is adjusted as appropriate to reflect qualitative risks associated with the types of homes built and the geographic areas in which they are built.

     Changes in the Company’s warranty reserve are as follows:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
	(In millions)
Warranty reserve, beginning of period	$	100.9		$	79.7		$	96.0		$	73.1
Warranties issued		17.2			14.0			44.5			36.9
Changes in reserves for pre-existing warranties		(1.2	)		(5.9	)		(3.3	)		(9.2	)
Settlements made		(10.9	)		(7.8	)		(31.2	)		(20.8	)
Warranty reserve, end of period	$	106.0		$	80.0		$	106.0		$	80.0

NOTE H — STOCK-BASED COMPENSATION

The Company may, with the approval of the Compensation Committee of its Board of Directors, grant to its employees options to purchase a fixed number of shares of its common stock. The Company accounts for stock option grants in accordance with Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees.” The exercise price of the Company’s employee stock options generally equals the market price of the underlying stock on the date of grant; therefore, no compensation expense is recognized for the initial grant. The Company adopted the disclosure provisions specified by Statement of Financial Accounting Standard (SFAS) No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” SFAS No. 123 and SFAS No. 148 require disclosure of pro forma net income and pro forma net income per share as if the fair value based method had been applied in measuring compensation expense.

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D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

The following table sets forth the effect on net income and earnings per share (split-adjusted) for the three months and nine months ended June 30, 2005 and 2004 as if the fair value based method had been applied:

	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
	(In millions, except per share data)
Net income as reported	$	371.7		$	251.3		$	906.7		$	625.5
Add: Stock-based employee compensation expense included in reported net income, net of tax		—			0.3			—			1.0
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax		(1.9	)		(2.0	)		(5.9	)		(4.8	)
Pro forma net income	$	369.8		$	249.6		$	900.8		$	621.7
Reported basic earnings per share	$	1.19		$	0.81		$	2.91		$	2.02
Pro forma basic earnings per share	$	1.18		$	0.80		$	2.89		$	2.00
Reported diluted earnings per share	$	1.17		$	0.80		$	2.85		$	1.98
Pro forma diluted earnings per share	$	1.16		$	0.79		$	2.83		$	1.97

NOTE I – RECENT ACCOUNTING PRONOUNCEMENTS

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.” This statement, which replaces APB Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements,” changes the requirements for the accounting for and reporting of a change in accounting principle. The statement requires retrospective application of changes in accounting principle to prior periods’ financial statements unless it is impracticable to determine the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment.” This statement, which replaces SFAS No. 123 and supersedes APB Opinion No. 25, requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements. The statement will be effective beginning in the Company’s first quarter of fiscal year 2006. The Company is currently evaluating the impact of the adoption of SFAS No. 123(R); however, it is not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In December 2004, the FASB issued Staff Position 109-1, “Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004” (FSP 109-1). The American Jobs Creation Act, which was signed into law in October 2004, provides a tax deduction on qualified domestic production activities. When fully phased-in, the deduction will be up to 9% of the lesser of “qualified production activities income” or taxable income. Based on the guidance provided by FSP 109-1, this deduction should be accounted for as a special deduction under SFAS No. 109 and will reduce tax expense in the period or periods that the amounts are deductible on the tax return. The tax benefits, if any, resulting from the new deduction will be effective beginning in the Company’s first quarter of fiscal year 2006. The Company is currently evaluating the impact of this law on its future financial statements.

-11-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

In October 2004, the FASB ratified Emerging Issues Task Force Issue No. 04-8, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share” (EITF 04-8). EITF 04-8 requires that shares underlying contingently convertible debt be included in diluted earnings per share computations using the if-converted method regardless of whether the market price trigger, or other contingent features, has been met. The effective date for EITF 04-8 is for reporting periods ending after December 15, 2004. EITF 04-8 also requires restatement of earnings per share amounts for prior periods presented during which the instrument was outstanding. In May 2001, the Company issued 381,113 zero coupon convertible senior notes, which were converted into shares of its common stock in June 2003. During certain quarters of the years ended September 30, 2003, 2002 and 2001, the market price trigger was not met and the convertible shares were not included in the computation of diluted earnings per share.

The following table sets forth the effect of the adoption of EITF 04-8 on diluted income before cumulative effect of change in accounting principle per share and net income per share for the periods affected. Per share amounts have been adjusted to reflect the effects of all stock splits paid subsequent to the date these per share amounts were originally reported.

	Year Ended September 30,
	2003			2002			2001
Reported diluted income per share before cumulative effect of change in accounting principle	$	2.05		$	1.44		$	1.10
Per share effect of adoption of EITF 04-8		(0.06	)		(0.05	)		(0.03	)
Adjusted diluted income per share before cumulative effect of change in accounting principle	$	1.99		$	1.39		$	1.07
Reported diluted net income per share	$	2.05		$	1.44		$	1.11
Per share effect of adoption of EITF 04-8		(0.06	)		(0.05	)		(0.03	)
Adjusted diluted net income per share	$	1.99		$	1.39		$	1.08

NOTE J – CONTINGENCIES

The Company has been named as defendant in various claims, complaints and other legal actions arising in the ordinary course of business, including warranty and construction defect claims on closed homes. The Company has established reserves for such contingencies, based on the expected costs of the self-insured portion of such claims. The Company’s estimates of such reserves are based on the facts and circumstances of individual pending claims and historical data and trends, including estimates of the costs of unreported claims related to past operations. These reserve estimates are subject to ongoing revision as the circumstances of individual pending claims and historical data and trends change. Adjustments to estimated reserves are recorded in the accounting period in which the change in estimate occurs.

Management believes that, while the outcome of such contingencies cannot be predicted with certainty, the liabilities arising from these matters will not have a material adverse effect on the Company’s financial position. However, to the extent the liability arising from the ultimate resolution of any matter exceeds management’s estimates reflected in the reserves relating to such matter, the Company could incur additional charges that could be significant.

-12-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION

All of the Company’s senior and senior subordinated notes and borrowings under the homebuilding revolving credit facility are fully and unconditionally guaranteed, on a joint and several basis, by all of the Company’s direct and indirect subsidiaries (Guarantor Subsidiaries), other than financial services subsidiaries and certain other inconsequential subsidiaries (collectively, Non-Guarantor Subsidiaries). Each of the Guarantor Subsidiaries is wholly-owned. In lieu of providing separate financial statements for the Guarantor Subsidiaries, consolidated condensed financial statements are presented below. Separate financial statements and other disclosures concerning the Guarantor Subsidiaries are not presented because management has determined that they are not material to investors.

Consolidating Balance Sheet
June 30, 2005

	D.R.		Guarantor		Non-Guarantor
	Horton, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total
	(In millions)
ASSETS
Cash and cash equivalents	$	47.0	$	58.7	$	66.1	$	—		$	171.8
Advances to and investments in subsidiaries		6,615.6		157.8		—		(6,773.4	)		—
Inventories		2,121.0		6,291.5		209.9		—			8,622.4
Property and equipment (net)		13.0		68.3		16.5		—			97.8
Earnest money deposits and other assets		304.7		367.9		72.3		—			744.9
Mortgage loans held for sale		—		—		828.7		—			828.7
Goodwill		—		578.9		—		—			578.9
Total Assets	$	9,101.3	$	7,523.1	$	1,193.5	$	(6,773.4	)	$	11,044.5
LIABILITIES & EQUITY
Accounts payable and other liabilities	$	634.3	$	980.4	$	54.0	$	—		$	1,668.7
Advances from parent/subsidiaries		—		4,535.1		91.3		(4,626.4	)		—
Notes payable		3,646.7		8.0		708.4		—			4,363.1
Total Liabilities		4,281.0		5,523.5		853.7		(4,626.4	)		6,031.8
Minority interests		—		—		192.4		—			192.4
Total Equity		4,820.3		1,999.6		147.4		(2,147.0	)		4,820.3
Total Liabilities & Equity	$	9,101.3	$	7,523.1	$	1,193.5	$	(6,773.4	)	$	11,044.5

-13-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Balance Sheet
September 30, 2004

	D.R.		Guarantor		Non-Guarantor
	Horton, Inc.		Subsidiaries		Subsidiaries		Eliminations			Total
	(In millions)
ASSETS
Cash and cash equivalents	$	338.9	$	131.6	$	47.5	$	—		$	518.0
Advances to and investments in subsidiaries		5,384.5		182.4		—		(5,566.9	)		—
Inventories		1,487.6		4,894.4		185.4		—			6,567.4
Property and equipment (net)		16.3		58.8		16.8		—			91.9
Earnest money deposits and other assets		256.3		299.8		49.6		—			605.7
Mortgage loans held for sale		—		—		623.3		—			623.3
Goodwill		—		578.9		—		—			578.9
Total Assets	$	7,483.6	$	6,145.9	$	922.6	$	(5,566.9	)	$	8,985.2
LIABILITIES & EQUITY
Accounts payable and other liabilities	$	537.1	$	772.3	$	49.5	$	—		$	1,358.9
Advances from parent/subsidiaries		—		3,374.5		90.6		(3,465.1	)		—
Notes payable		2,985.8		18.9		494.5		—			3,499.2
Total Liabilities		3,522.9		4,165.7		634.6		(3,465.1	)		4,858.1
Minority interests		—		—		166.4		—			166.4
Total Equity		3,960.7		1,980.2		121.6		(2,101.8	)		3,960.7
Total Liabilities & Equity	$	7,483.6	$	6,145.9	$	922.6	$	(5,566.9	)	$	8,985.2

-14-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Three Months Ended June 30, 2005

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
Homebuilding:
Revenues:
Home sales	$	743.1		$	2,528.7		$	5.3		$	—		$	3,277.1
Land/lot sales		14.4			18.0			—			—			32.4
		757.5			2,546.7			5.3			—			3,309.5
Cost of sales:
Home sales		496.2			1,913.7			3.8			—			2,413.7
Land/lot sales		6.7			10.3			—			—			17.0
		502.9			1,924.0			3.8			—			2,430.7
Gross profit:
Home sales		246.9			615.0			1.5			—			863.4
Land/lot sales		7.7			7.7			—			—			15.4
		254.6			622.7			1.5			—			878.8
Selling, general and administrative expense		121.8			174.5			1.8			3.9			302.0
Other (income) expense		(471.6	)		(0.5	)		(0.5	)		472.1			(0.5	)
		604.4			448.7			0.2			(476.0	)		577.3
Financial services:
Revenues		—			—			60.7			—			60.7
General and administrative expense		—			—			42.4			(3.9	)		38.5
Interest expense		—			—			4.1			—			4.1
Other (income)		—			—			(9.0	)		—			(9.0	)
		—			—			23.2			3.9			27.1
Income before income taxes		604.4			448.7			23.4			(472.1	)		604.4
Provision for income taxes		232.7			172.9			8.9			(181.8	)		232.7
Net income	$	371.7		$	275.8		$	14.5		$	(290.3	)	$	371.7

-15-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Nine Months Ended June 30, 2005

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
Homebuilding:
Revenues:
Home sales	$	1,843.2		$	6,551.6		$	38.1		$	—		$	8,432.9
Land/lot sales		119.1			58.4			—			—			177.5
		1,962.3			6,610.0			38.1			—			8,610.4
Cost of sales:
Home sales		1,284.4			4,969.6			25.8			—			6,279.8
Land/lot sales		75.1			30.3			—			—			105.4
		1,359.5			4,999.9			25.8			—			6,385.2
Gross profit:
Home sales		558.8			1,582.0			12.3			—			2,153.1
Land/lot sales		44.0			28.1			—			—			72.1
		602.8			1,610.1			12.3			—			2,225.2
Selling, general and administrative expense		321.2			489.8			5.5			10.2			826.7
Other (income) expense		(1,192.6	)		(8.8	)		(0.6	)		1,190.6			(11.4	)
		1,474.2			1,129.1			7.4			(1,200.8	)		1,409.9
Financial services:
Revenues		—			—			156.5			—			156.5
General and administrative expense		—			—			115.3			(10.2	)		105.1
Interest expense		—			—			9.1			—			9.1
Other (income)		—			—			(22.0	)		—			(22.0	)
		—			—			54.1			10.2			64.3
Income before income taxes		1,474.2			1,129.1			61.5			(1,190.6	)		1,474.2
Provision for income taxes		567.5			434.9			23.5			(458.4	)		567.5
Net income	$	906.7		$	694.2		$	38.0		$	(732.2	)	$	906.7

-16-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Three Months Ended June 30, 2004

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
Homebuilding:
Revenues:
Home sales	$	527.8		$	2,121.1		$	46.6		$	—		$	2,695.5
Land/lot sales		2.3			43.9			—			—			46.2
		530.1			2,165.0			46.6			—			2,741.7
Cost of sales:
Home sales		378.1			1,677.6			31.1			—			2,086.8
Land/lot sales		2.3			26.8			—			—			29.1
		380.4			1,704.4			31.1			—			2,115.9
Gross profit:
Home sales		149.7			443.5			15.5			—			608.7
Land/lot sales		—			17.1			—			—			17.1
		149.7			460.6			15.5			—			625.8
Selling, general and administrative expense		89.9			147.5			3.7			3.2			244.3
Other (income) expense		(348.8	)		(3.6	)		3.4			341.6			(7.4	)
		408.6			316.7			8.4			(344.8	)		388.9
Financial services:
Revenues		—			—			48.7			—			48.7
General and administrative expense		—			—			35.4			(3.2	)		32.2
Interest expense		—			—			1.6			—			1.6
Other (income)		—			—			(4.8	)		—			(4.8	)
		—			—			16.5			3.2			19.7
Income before income taxes		408.6			316.7			24.9			(341.6	)		408.6
Provision for income taxes		157.3			121.9			9.6			(131.5	)		157.3
Net income	$	251.3		$	194.8		$	15.3		$	(210.1	)	$	251.3

-17-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Income
Nine Months Ended June 30, 2004

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
Homebuilding:
Revenues:
Home sales	$	1,273.4		$	5,709.3		$	98.0		$	—		$	7,080.7
Land/lot sales		10.9			106.9			—			—			117.8
		1,284.3			5,816.2			98.0			—			7,198.5
Cost of sales:
Home sales		918.8			4,501.7			69.5			—			5,490.0
Land/lot sales		7.0			65.4			—			—			72.4
		925.8			4,567.1			69.5			—			5,562.4
Gross profit:
Home sales		354.6			1,207.6			28.5			—			1,590.7
Land/lot sales		3.9			41.5			—			—			45.4
		358.5			1,249.1			28.5			—			1,636.1
Selling, general and administrative expense		235.5			427.2			8.2			8.6			679.5
Interest expense		3.0			—			0.3			—			3.3
Other (income) expense		(897.0	)		(7.2	)		7.6			889.5			(7.1	)
		1,017.0			829.1			12.4			(898.1	)		960.4
Financial services:
Revenues		—			—			131.7			—			131.7
General and administrative expense		—			—			92.4			(8.6	)		83.8
Interest expense		—			—			4.0			—			4.0
Other (income)		—			—			(12.7	)		—			(12.7	)
		—			—			48.0			8.6			56.6
Income before income taxes		1,017.0			829.1			60.4			(889.5	)		1,017.0
Provision for income taxes		391.5			319.2			23.2			(342.4	)		391.5
Net income	$	625.5		$	509.9		$	37.2		$	(547.1	)	$	625.5

-18-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2005

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
OPERATING ACTIVITIES
Net income	$	906.7		$	694.2		$	38.0		$	(732.2	)	$	906.7
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		5.0			31.8			2.4			—			39.2
Amortization of debt premiums, discounts and fees		3.1			—			—			—			3.1
Changes in operating assets and liabilities:
(Increase) decrease in inventories		(624.6	)		(1,388.1	)		8.9			—			(2,003.8	)
Increase in earnest money deposits and other assets		(42.9	)		(67.3	)		(23.1	)		—			(133.3	)
Increase in mortgage loans held for sale		—			—			(205.4	)		—			(205.4	)
Increase (decrease) in accounts payable and other liabilities		87.6			208.0			(3.0	)		—			292.6
Net cash provided by (used in) operating activities		334.9			(521.4	)		(182.2	)		(732.2	)		(1,100.9	)
INVESTING ACTIVITIES
Net purchases of property and equipment		(2.2	)		(40.9	)		(1.6	)		—			(44.7	)
Net cash used in investing activities		(2.2	)		(40.9	)		(1.6	)		—			(44.7	)
FINANCING ACTIVITIES
Net change in notes payable		645.2			(12.9	)		213.9			—			846.2
(Decrease) increase in intercompany payables		(1,223.0	)		1,177.3			(11.5	)		57.2			—
Proceeds from stock associated with certain employee benefit plans		21.5			—			—			—			21.5
Cash dividends/distributions paid		(68.3	)		(675.0	)		—			675.0			(68.3	)
Net cash (used in) provided by financing activities		(624.6	)		489.4			202.4			732.2			799.4
(Decrease) increase in cash and cash equivalents		(291.9	)		(72.9	)		18.6			—			(346.2	)
Cash and cash equivalents at beginning of period		338.9			131.6			47.5			—			518.0
Cash and cash equivalents at end of period	$	47.0		$	58.7		$	66.1		$	—		$	171.8

-19-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE K — SUMMARIZED FINANCIAL INFORMATION — (Continued)

Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2004

	D.R.			Guarantor			Non-Guarantor
	Horton, Inc.			Subsidiaries			Subsidiaries			Eliminations			Total
	(In millions)
OPERATING ACTIVITIES
Net income	$	625.5		$	509.9		$	37.2		$	(547.1	)	$	625.5
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		5.9			26.0			2.5			—			34.4
Amortization of debt premiums, discounts and fees		5.0			—			—			—			5.0
Changes in operating assets and liabilities:
(Increase) decrease in inventories		(310.1	)		(1,042.6	)		18.6			—			(1,334.1	)
Increase in earnest money deposits and other assets		(5.9	)		(32.8	)		(0.9	)		—			(39.6	)
Decrease in mortgage loans held for sale		—			—			71.9			—			71.9
(Decrease) increase in accounts payable and other liabilities		(44.6	)		130.6			(12.1	)		—			73.9
Net cash provided by (used in) operating activities		275.8			(408.9	)		117.2			(547.1	)		(563.0	)
INVESTING ACTIVITIES
Net purchases of property and equipment		(7.0	)		(29.5	)		(2.8	)		—			(39.3	)
Net cash used in investing activities		(7.0	)		(29.5	)		(2.8	)		—			(39.3	)
FINANCING ACTIVITIES
Net change in notes payable		414.3			(29.4	)		(88.7	)		—			296.2
(Decrease) increase in intercompany payables		(769.0	)		751.6			(29.7	)		47.1			—
Proceeds from stock associated with certain employee benefit plans		11.5			—			—			—			11.5
Cash dividends/distributions paid		(48.2	)		(500.0	)		—			500.0			(48.2	)
Net cash (used in) provided by financing activities		(391.4	)		222.2			(118.4	)		547.1			259.5
Decrease in cash and cash equivalents		(122.6	)		(216.2	)		(4.0	)		—			(342.8	)
Cash and cash equivalents at beginning of period		196.1			319.0			67.8			—			582.9
Cash and cash equivalents at end of period	$	73.5		$	102.8		$	63.8		$	—		$	240.1

-20-

D.R. HORTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) – (Continued)
June 30, 2005

NOTE L – SUBSEQUENT EVENTS

In July 2005, the Company issued $300 million principal amount of 5.375% senior notes due 2012. The notes, which are due June 15, 2012, with interest payable semi-annually, represent unsecured obligations of the Company. The Company may redeem the notes in whole at any time or in part from time to time, at a redemption price equal to the greater of 100% of their principal amount or the present value of the remaining scheduled payments on the redemption date, discounted at a rate equal to the yield to maturity of a United States Treasury security with a comparable maturity, plus 25 basis points (0.25%), plus, in each case, accrued interest. The annual effective interest rate of the notes, after giving effect to the amortization of deferred financing costs is 5.4%.

On July 15, 2005, the Company redeemed its 9.375% senior notes due 2009 at an aggregate redemption price of approximately $246 million, plus accrued interest. The notes were originally issued by Schuler Homes, Inc. and were assumed by the Company in their merger in February 2002. Concurrent with the redemption, the Company recorded interest expense of approximately $4.6 million, representing the call premium net of the unamortized premium related to the redeemed notes.

-21-

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 2. OVERVIEW

We are the largest homebuilding company in the United States based on domestic homes closed in 2004. We construct and sell single-family homes in metropolitan areas in 23 states and 71 markets primarily under the name of D.R. Horton, America’s Builder. Our homebuilding operations primarily include the construction and sale of single-family detached and attached homes with sales prices generally ranging from $80,000 to $900,000.

Through our financial services operations, we provide mortgage banking and title agency services to homebuyers in many of our homebuilding markets. DHI Mortgage, our wholly-owned subsidiary, provides mortgage financing services principally to purchasers of homes we build and sell. We originate mortgage loans, then package and sell them and their servicing rights to third-party investors shortly after origination. Our subsidiary title companies serve as title insurance agents by providing title insurance policies, examination and closing services primarily to purchasers of homes we build and sell.

We conduct our homebuilding operations in all of the following geographic regions, states and markets, and we conduct our mortgage and title operations in the markets indicated below:

		Mortgage (M)
State	Region/Market	Title (T)
	Mid-Atlantic Region
Maryland	Baltimore		M
	Suburban Washington D.C.		M,T
New Jersey	New Jersey		M,T
North Carolina	Brunswick
	Charlotte		M
	Greensboro/Winston-Salem		M
	Raleigh/Durham		M
Pennsylvania	Philadelphia
	York/Lancaster
South Carolina	Charleston		M
	Columbia		M
	Greenville		M
	Hilton Head		M
	Myrtle Beach		M
Virginia	Northern Virginia		M,T
	Midwest Region
Illinois	Chicago		M
Minnesota	Minneapolis/St. Paul		M,T
Wisconsin	Kenosha
	Southeast Region
Alabama	Birmingham		M
	Huntsville		M
Georgia	Atlanta		M,T
	Macon
	Savannah		M
Florida	Daytona Beach		M
	Fort Myers/Naples		M,T
	Jacksonville		M,T
	Melbourne		M
	Miami/West Palm Beach		M,T
	Orlando		M,T
	Tampa		M,T

		Mortgage (M)
State	Region/Market	Title (T)
	Southwest Region
Arizona	Casa Grande		M,T
	Phoenix		M,T
	Tucson		M
New Mexico	Albuquerque		M
	Las Cruces		M
Oklahoma	Oklahoma City
Texas	Austin		M,T
	Dallas		M,T
	Fort Worth		M,T
	Houston		M,T
	Killeen/Temple		M
	Laredo		M
	Rio Grande Valley		M
	San Antonio		M,T
	Waco		M
	West Region
California	Bakersfield/Lancaster/Palmdale		M
	Fresno/Modesto		M
	Los Angeles County		M
	Oakland/North Bay		M
	Orange County		M
	Riverside/San Bernardino		M
	Sacramento		M
	San Diego County		M
	San Francisco		M
	San Jose/Pleasanton/East Bay		M
	Ventura County		M
Colorado	Colorado Springs		M
	Denver		M
	Ft. Collins		M
Hawaii	Hawaii		M
	Maui		M
	Oahu		M
Nevada	Las Vegas		M,T
	Reno		M
Oregon	Albany
	Bend		M
	Eugene		M
	Portland		M
Utah	Salt Lake City		M
Washington	Seattle/Tacoma		M
	Vancouver		M

-22-

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We experienced increases in revenues and earnings during the three and nine months ended June 30, 2005, driven by the continued growth of our homebuilding operations and by improvements in homebuilding profit margins. Key financial highlights as of and for the three months ended June 30, 2005 as compared to the same period of 2004 were as follows:

• Net sales orders increased 29% to $4.1 billion

• Sales order backlog increased 36% to $7.0 billion

• Homebuilding revenue increased 21% to $3.3 billion

• Home sales gross profit margin improved 370 basis points to 26.3%

• Net income increased 48% to $371.7 million

• Diluted earnings per share increased 46% to $1.17 per share

Key financial highlights for the nine months ended June 30, 2005 as compared to the same period of 2004 were as follows:

• Net sales orders increased 27% to $10.9 billion

• Homebuilding revenue increased 20% to $8.6 billion

• Home sales gross profit margin improved 300 basis points to 25.5%

• Net income increased 45% to $906.7 million

• Diluted earnings per share increased 44% to $2.85 per share

RESULTS OF OPERATIONS — HOMEBUILDING

The following tables set forth key operating and financial data for our homebuilding operations:

NET SALES ORDERS

	Three Months Ended June 30,
	Homes Sold							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		1,453		1,147		27	%	$	381.6	$	296.7		29	%	$	262,600	$	258,700		2	%
Midwest		952		586		62	%		254.5		162.2		57	%		267,300		276,800		(3	)%
Southeast		2,346		1,739		35	%		577.3		394.1		46	%		246,100		226,600		9	%
Southwest		5,807		4,962		17	%		1,158.5		839.2		38	%		199,500		169,100		18	%
West		4,422		4,010		10	%		1,762.9		1,524.1		16	%		398,700		380,100		5	%
		14,980		12,444		20	%	$	4,134.8	$	3,216.3		29	%	$	276,000	$	258,500		7	%

	Nine Months Ended June 30,
	Homes Sold							Value (In millions)							Average Selling Price
					%							%							%
	2005		2004		Change			2005		2004		Change			2005		2004		Change
Mid-Atlantic		3,753		2,896		30	%	$	1,004.7	$	740.6		36	%	$	267,700	$	255,700		5	%
Midwest		2,258		1,617		40	%		603.8		462.5		31	%		267,400		286,000		(7	)%
Southeast		6,079		4,670		30	%		1,485.8		1,010.7		47	%		244,400		216,400		13	%
Southwest		15,383		13,677		12	%		3,007.1		2,300.2		31	%		195,500		168,200		16	%
West		11,809		11,298		5	%		4,787.8		4,069.8		18	%		405,400		360,200		13	%
		39,282		34,158		15	%	$	10,889.2	$	8,583.8		27	%	$	277,200	$	251,300		10	%

-23-

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

	SALES ORDER BACKLOG
	As of June 30,
	Homes in Backlog				Value (In millions)						Average Selling Price
			%						%						%
	2005	2004	Change		2005		2004		Change		2005		2004		Change
Mid-Atlantic	2,812	1,861	51	%	$	825.3	$	523.5	58	%	$	293,500	$	281,300	4	%
Midwest	1,701	1,177	45	%	502.3		355.5		41	%	295,300		302,000		(2	)%
Southeast	4,027	2,730	48	%	1,047.0		624.0		68	%	260,000		228,600		14	%
Southwest	8,543	7,415	15	%	1,796.9		1,280.8		40	%	210,300		172,700		22	%
West	6,833	6,348	8	%	2,853.2		2,372.7		20	%	417,600		373,800		12	%
	23,916	19,531	22	%	$	7,024.7	$	5,156.5	36	%	$	293,700	$	264,000	11	%

	HOMES CLOSED
	Three Months Ended June 30,
	Homes Closed				Value (In millions)						Average Selling Price
			%						%						%
	2005	2004	Change		2005		2004		Change		2005		2004		Change
Mid-Atlantic	978	994	(2	)%	$	253.1	$	226.0	12	%	$	258,800	$	227,400	14	%
Midwest	563	534	5	%	146.7		147.3		—	%	260,600		275,800		(6	)%
Southeast	1,942	1,360	43	%	447.9		281.9		59	%	230,600		207,300		11	%
Southwest	4,819	4,565	6	%	892.8		769.3		16	%	185,300		168,500		10	%
West	3,967	3,597	10	%	1,536.6		1,271.0		21	%	387,300		353,400		10	%
	12,269	11,050	11	%	$	3,277.1	$	2,695.5	22	%	$	267,100	$	243,900	10	%

	Nine Months Ended June 30,
	Homes Closed				Value (In millions)						Average Selling Price
			%						%						%
	2005	2004	Change		2005		2004		Change		2005		2004		Change
Mid-Atlantic	2,681	2,637	2	%	$	671.6	$	588.0	14	%	$	250,500	$	223,000	12	%
Midwest	1,418	1,421	—	%	371.2		385.8		(4	)%	261,800		271,500		(4	)%
Southeast	5,039	3,763	34	%	1,137.3		750.8		51	%	225,700		199,500		13	%
Southwest	13,472	12,938	4	%	2,405.5		2,140.3		12	%	178,600		165,400		8	%
West	9,940	9,356	6	%	3,847.3		3,215.8		20	%	387,100		343,700		13	%
	32,550	30,115	8	%	$	8,432.9	$	7,080.7	19	%	$	259,100	$	235,100	10	%

HOMEBUILDING OPERATING MARGIN ANALYSIS

	Percentages of Total Homebuilding Revenues
	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
Gross profit:
Home sales		26.3	%		22.6	%		25.5	%		22.5	%
Land/lot sales		47.5	%		37.0	%		40.6	%		38.5	%
Total homebuilding gross profit		26.6	%		22.8	%		25.8	%		22.7	%
Selling, general and administrative expense		9.1	%		8.9	%		9.6	%		9.4	%
Interest expense		—	%		—	%		—	%		—	%
Other (income)		—	%		(0.3	)%		(0.1	)%		(0.1	)%
Income before income taxes		17.4	%		14.2	%		16.4	%		13.3	%

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net Sales Orders and Backlog

Net sales orders represent the number and dollar value of new sales contracts executed with customers, net of sales contract cancellations. The value of net sales orders increased 29% to $4,134.8 million (14,980 homes) for the three months ended June 30, 2005, from $3,216.3 million (12,444 homes) for the same period of 2004. The value of net sales orders increased 27% to $10,889.2 million (39,282 homes) for the nine months ended June 30, 2005, from $8,583.8 million (34,158 homes) for the same period of 2004. The average price of a net sales order in the three months ended June 30, 2005 was $276,000, up 7% from the $258,500 average in the comparable period of 2004. The average price of a net sales order in the nine months ended June 30, 2005 was $277,200, up 10% from the $251,300 average in the comparable period of 2004. The number and value of net sales orders during the three and nine-month periods increased in each of our five market regions, with all regions producing double-digit increases in both categories during the three-month period. These results reflect the successful execution of our organic growth strategies and the overall strong demand for our homes.

The largest percentage increase in the value of net sales orders during the three-month period occurred in our Midwest region, which is comprised of only three markets, and where our efforts to offer more lower priced products in the Chicago market helped contribute to a 62% increase in the number of units sold for the region. The largest percentage increase in the value of net sales orders during the nine-month period occurred in the Southeast region, as we continue to expand our presence in our Florida markets where housing demand is high. The average price of net sales orders during the three and nine-month periods increased in four of our five market regions, demonstrating our ability to increase prices in the markets where demand for our homes is strongest. In the Midwest region, the average sales price for the three and nine-month periods was down 3% and 7%, respectively, due to efforts to offer more lower priced products in the Chicago market.

Sales order backlog represents homes under contract but not yet closed at the end of the period. Some of the contracts in our sales order backlog are subject to contingencies, including mortgage loan approval, that can result in cancellations. In the past, our backlog has been a reliable indicator of the level of closings in our two subsequent fiscal quarters, although some contracts in backlog will not result in closings. At June 30, 2005, the value of our backlog of sales orders was $7,024.7 million (23,916 homes), up 36% from $5,156.5 million (19,531 homes) at June 30, 2004. The average sales price of homes in sales order backlog was $293,700 at June 30, 2005, up 11% from the average price of $264,000 at June 30, 2004. The value of our backlog of sales orders was up in all of our five market regions, with the Southeast and Mid-Atlantic regions showing the largest percentage increases from the prior period, up 68% and 58%, respectively. These increases are the result of our continued efforts to expand our presence in our Florida, New Jersey and Northern Virginia markets. The increase in our average selling price is due to our ability to increase prices in the markets where demand for our homes is strongest.

Home Sales Revenue and Gross Profit

Revenues from home sales increased 22%, to $3,277.1 million (12,269 homes closed) for the three months ended June 30, 2005, from $2,695.5 million (11,050 homes closed) for the comparable period of 2004. Revenues from home sales increased 19%, to $8,432.9 million (32,550 homes closed) for the nine months ended June 30, 2005, from $7,080.7 million (30,115 homes closed) for the comparable period of 2004. The average selling price of homes closed during the three months ended June 30, 2005 was $267,100, up 10% from $243,900 for the same period in 2004. The average selling price of homes closed during the nine months ended June 30, 2005 was $259,100, up 10% from $235,100 for the same period in 2004. Revenues from home sales increased in four of our five market regions during the three and nine-month periods. The increase in our revenues is due to our continued execution of our organic growth strategies in most of our markets and our ability to increase prices in the markets where demand for our homes is strongest.

Gross profit from home sales increased by 42%, to $863.4 million for the three months ended June 30, 2005, from $608.7 million for the comparable period of 2004. Gross profit from home sales increased by 35%, to $2,153.1 million for the nine months ended June 30, 2005, from $1,590.7 million for the comparable period of 2004. Gross profit from home sales as a percentage of home sales revenues increased 370 basis points, to 26.3% for the three

-25-

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

months ended June 30, 2005; and 300 basis points, to 25.5% for the nine months ended June 30, 2005, from the comparable periods of 2004. The improvement in gross profit from home sales as a percentage of revenue for the three and nine-month periods is attributable to our ability to increase home prices in many of our markets, our ongoing efforts to control and reduce construction costs through our local, regional and national purchasing programs, and our ongoing efforts to re-allocate capital to our more profitable markets. The gross profit improvement also reflects a decrease in the capitalized interest amortized to cost of sales, resulting from improvement in our homebuilding leverage ratios and our debt refinancing efforts over the past two years.

Land Sales Revenue and Gross Profit

Land sales revenues decreased 30%, to $32.4 million for the three months ended June 30, 2005, and increased 51%, to $177.5 million for the nine months ended June 30, 2005, from $46.2 million and $117.8 million in the comparable periods of 2004. The increase in land sales revenue for the nine-month period is due to our sale of a single, commercially-zoned parcel in our West region in March 2005. The gross profit percentage from land sales increased to 47.5% for the three months ended June 30, 2005, from 37.0% in the comparable period of the prior year, and increased to 40.6% for the nine months ended June 30, 2005 from 38.5% in the prior year. The fluctuations in revenues and gross profit percentages from land sales are a function of how we manage our inventory levels in various markets. We generally purchase land and lots with the intent to build and sell homes on them. When we have the opportunity and the need to sell land or lots in our various markets to manage inventories at desired levels, or because the land is not zoned for residential construction, the resulting land sales occur at unpredictable intervals and varying degrees of profitability. Therefore, the revenues and gross profit from land sales can fluctuate significantly from period to period.

Selling, General and Administrative Expense

Selling, general and administrative (SG&A) expenses from homebuilding activities increased by 24%, to $302.0 million in the three months ended June 30, 2005, and 22%, to $826.7 million in the nine months ended June 30, 2005, from the comparable periods of 2004. As a percentage of homebuilding revenues, SG&A expenses increased 20 basis points in both the three months and nine months ended June 30, 2005, to 9.1% and 9.6% for the three months and nine months ended June 30, 2005, respectively, from the comparable periods of 2004. Our homebuilding SG&A expense as a percentage of revenues can vary between quarters, depending largely on the relative fluctuations in quarterly revenue levels. The increases in SG&A expenses as a percentage of homebuilding revenues in the three and nine-month periods are due primarily to costs associated with the growth of our infrastructure to support our planned growth in home deliveries.

Interest Expense

Interest incurred related to homebuilding debt increased by 15%, to $68.8 million in the three months ended June 30, 2005, from $59.7 million in the comparable period in 2004, while our average daily homebuilding debt increased 23% from the prior year period. Interest incurred related to homebuilding debt also increased by 15%, to $204.7 million in the nine months ended June 30, 2005, from $177.7 million in the comparable period in 2004, while our average daily homebuilding debt increased 26% from the prior year period. Interest incurred increased at a slower rate than average debt because we have replaced certain of our higher interest rate notes with notes bearing lower interest rates, and we restructured and amended our unsecured revolving credit facility in March 2004, which lowered our interest costs.

We capitalize interest costs only to inventory under construction or development. During both years, our inventory under construction or development exceeded our interest-bearing debt; therefore, we capitalized virtually all interest from homebuilding debt. Interest expense of $3.3 million for the nine-month period of 2004 included $3.1 million of unamortized issuance costs related to restructuring our revolving credit facility during the quarter ended March 31, 2004. Interest amortized to cost of sales was 2.5% of total cost of sales in both the three and nine month periods ended June 30, 2005, compared to 3.1% in both of the comparable periods of 2004. The reduction in interest amortized to cost of sales as a percentage of total cost of sales for the three and nine-month periods is a direct result

-26-

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

of the reductions in our homebuilding leverage ratios and our debt refinancing efforts over the past two years, which has also reduced our capitalized interest as a percentage of inventory.

Other Income

Other income associated with homebuilding activities was $0.5 million in the three months ended June 30, 2005, compared to $7.4 million in the comparable period of 2004. Other income associated with homebuilding activities was $11.4 million in the nine months ended June 30, 2005, compared to $7.1 million in the comparable period of 2004. The largest component of other income for the nine-month period is the change in the fair value of our interest rate swaps.

RESULTS OF OPERATIONS — FINANCIAL SERVICES

The following tables set forth key operating and financial data for our financial services operations:

	Three Months Ended June 30,									Nine Months Ended June 30,
							%									%
	2005			2004			Change			2005			2004			Change
							($ in millions)
Loan origination fees	$	11.0		$	9.4			17	%	$	28.0		$	24.7			13	%
Sale of servicing rights and gains from sale of mortgages		29.1			23.9			22	%		76.1			64.9			17	%
Other revenues		8.5			6.1			39	%		21.2			15.3			39	%
Total mortgage banking revenues		48.6			39.4			23	%		125.3			104.9			19	%
Title policy premiums, net		12.1			9.3			30	%		31.2			26.8			16	%
Total revenues		60.7			48.7			25	%		156.5			131.7			19	%
General and administrative expense		38.5			32.2			20	%		105.1			83.8			25	%
Interest expense		4.1			1.6			156	%		9.1			4.0			128	%
Other (income)		(9.0	)		(4.8	)		88	%		(22.0	)		(12.7	)		73	%
Income before income taxes	$	27.1		$	19.7			38	%	$	64.3		$	56.6			14	%

FINANCIAL SERVICES OPERATING MARGIN ANALYSIS

	Percentages of Total Financial Services Revenues
	Three Months Ended						Nine Months Ended
	June 30,						June 30,
	2005			2004			2005			2004
General and administrative expense		63.4	%		66.1	%		67.2	%		63.6	%
Interest expense		6.8	%		3.3	%		5.8	%		3.0	%
Other (income)		(14.8	)%		(9.9	)%		(14.1	)%		(9.6	)%
Income before income taxes		44.6	%		40.5	%		41.1	%		43.0	%

Financial Services Revenue

Revenues from the financial services segment increased 25% to $60.7 million in the three months ended June 30, 2005, from the comparable period of 2004. Revenues from the financial services segment increased 19% to $156.5 million in the nine months ended June 30, 2005, from the comparable period of 2004. The increase in financial services revenues was primarily due to increases in the number of loans originated and sold to third-party investors and title policy premiums, resulting from the growth of our homebuilding operations. The majority of the revenues associated with our mortgage operations are recognized when the mortgage loans and related servicing rights are sold to third-party investors.

-27-

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General and Administrative Expense

General and administrative expenses associated with financial services increased 20% and 25%, to $38.5 million and $105.1 million in the three and nine months ended June 30, 2005, respectively, from the comparable periods of 2004. As a percentage of financial services revenues, general and administrative expenses in the three-month period ended June 30, 2005 was 63.4%, an improvement of 270 basis points from the comparable period of 2004. As a percentage of financial services revenues, general and administrative expenses in the nine-month period ended June 30, 2005 was 67.2%, an increase of 360 basis points from the comparable period of 2004. The decrease in general and administrative expenses as a percentage of financial services revenue during the three-month period was due primarily to the quarterly increase in revenues, which better leveraged our fixed costs than in the prior year quarter. The increase in general and administrative expenses as a percentage of financial services revenue during the nine-month period was due primarily to changes in the product mix of mortgage loans originated and sold, increased competition in the mortgage industry and our efforts to strengthen our financial services infrastructure to support our growing homebuilding business.

RESULTS OF OPERATIONS — CONSOLIDATED

Income Before Income Taxes

Income before income taxes for the three months ended June 30, 2005, increased 48% from the comparable period of 2004, to $604.4 million. Income before income taxes for the nine months ended June 30, 2005, increased 45% from the comparable period of 2004, to $1,474.2 million. As a percentage of revenues, income before income taxes for the three months ended June 30, 2005 was 17.9%, an increase of 330 basis points from the comparable period of 2004. As a percentage of revenues, income before income taxes for the nine months ended June 30, 2005 was 16.8%, an increase of 290 basis points from the comparable period of 2004. The primary factor contributing to these improvements was the homebuilding segment’s pre-tax operating margin, which increased 320 basis points and 310 basis points versus the three and nine months ended June 30, 2004, respectively.

Provision for Income Taxes

The consolidated provision for income taxes for the three and nine months ended June 30, 2005 increased 48% and 45% from the comparable periods of 2004, to $232.7 million and $567.5 million, respectively, due to the corresponding increase in income before income taxes. The effective income tax rate for all periods was 38.5%.

During 2004, the American Jobs Creation Act was signed into law. The tax benefits, if any, resulting from this legislation will be effective for our fiscal year ending September 30, 2006. We are currently evaluating the impact of this law on our future effective income tax rate and consolidated financial statements.

CAPITAL RESOURCES AND LIQUIDITY

We fund our homebuilding and financial services operations with cash flows from operating activities, borrowings under our bank credit facilities and the issuance of new debt securities. As we utilize our capital resources and liquidity to fund the growth of our operations, we have focused on maintaining strong balance sheet leverage ratios.

At June 30, 2005, our ratio of net homebuilding debt to total capital was 42.4%, increasing from 38.9% at September 30, 2004, and decreasing from 43.6% at June 30, 2004. Net homebuilding debt to total capital consists of homebuilding notes payable (net of cash) divided by total capital (homebuilding notes payable net of cash plus stockholders’ equity). The increase in our ratio of net homebuilding debt to total capital at June 30, 2005 as compared with the ratio at September 30, 2004 is due to the increase in borrowings associated with funding a planned increase in inventory, and is partially offset by the increase in retained earnings. We increased construction in progress inventory to support higher home closings planned for our fourth fiscal quarter, and we increased residential lot inventory to support our planned growth in home closings in future years. For the same reasons, our stockholders’ equity to total assets ratio decreased 50 basis points, to 43.6% at June 30, 2005, from 44.1% at September 30, 2004.

-28-

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We believe that we will be able to continue to fund our homebuilding and financial services operations and our future cash needs through a combination of our existing cash resources, cash flows from operations, our existing credit facilities and the issuance of new debt securities through the public capital markets.

Homebuilding Capital Resources

Cash — At June 30, 2005, our available homebuilding cash and cash equivalents amounted to $109.8 million.

Bank Credit Facility — We have a $1.21 billion unsecured revolving credit facility, which includes a $350 million letter of credit sub-facility, that matures on March 25, 2008. The facility is guaranteed by substantially all of our wholly-owned subsidiaries other than our financial services subsidiaries.

We had $50 million in cash borrowings outstanding on our homebuilding revolving credit facility at June 30, 2005 and no outstanding cash borrowings at September 30, 2004. Under the debt covenants associated with our revolving credit facility, our additional homebuilding borrowing capacity under the facility is limited to the lesser of the unused portion of the facility, $1.04 billion at June 30, 2005, or an amount determined under a borrowing base arrangement. Under the borrowing base limitation, the sum of our senior debt and the amount drawn on our revolving credit facility may not exceed certain percentages of the various categories of our unencumbered inventory. At June 30, 2005, the borrowing base arrangement would have limited our additional borrowing capacity from any source to $3.1 billion. At June 30, 2005, we were in compliance with all of the covenants, limitations and restrictions that form a part of our public debt obligations and our bank revolving credit facility.

Shelf Registration Statements — At June 30, 2005, we had the capacity to issue new debt or equity securities amounting to $900 million under our universal shelf registration statement. In July 2005, we issued $300 million of 5.375% senior notes which reduced our capacity under the universal shelf registration statement to $600 million. Also, at June 30, 2005, we had the capacity to issue approximately 22.5 million shares of common stock under our acquisition shelf registration statement, to effect, in whole or in part, possible future business acquisitions. We intend to maintain sufficient capacity under our universal shelf registration statement and our acquisition shelf registration statement to meet our anticipated capital needs, which may result in our updating or filing of additional registration statements.

Debt Repayments — On April 1, 2005, we repaid the $200 million principal amount of our 10.5% senior notes which became due on that date.

On July 15, 2005, we redeemed our 9.375% senior notes due 2009 at an aggregate redemption price of approximately $246 million, plus accrued interest. The notes were originally issued by Schuler Homes, Inc. and were assumed by us in the merger in February 2002. Concurrent with the redemption, we recorded interest expense of approximately $4.6 million, representing the call premium net of the unamortized premium related to the redeemed notes.

Financial Services Capital Resources

Cash — At June 30, 2005, we had available financial services cash and cash equivalents of $62.0 million.

Mortgage Warehouse Loan Facility - In April 2005, our wholly-owned mortgage company restructured and amended its $300 million mortgage warehouse loan facility, increasing the accordion feature to $150 million and extending its maturity to April 7, 2006. In June 2005, through amendment to the credit agreement, we exercised the accordion feature and obtained commitments from our lenders that increased the total size of the facility to $450 million. We expect the additional $150 million related to the exercise of the accordion feature to remain in place through October 2005, the period in which we expect our highest number of home closings and loan originations to occur. At June 30, 2005, we had borrowings of $308.4 million outstanding under the mortgage warehouse facility.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Commercial Paper Conduit Facility - Our wholly-owned mortgage company also has a $500 million commercial paper conduit facility (the “CP conduit facility”), which expires on June 29, 2006. In June 2005, through amendment to the credit agreement, we increased the capacity available under this facility to $500 million from its previous capacity of $300 million. At June 30, 2005, $400 million had been drawn under the CP conduit facility.

The mortgage warehouse loan facility and the CP conduit facility are not guaranteed by either the parent company or any of the subsidiaries that guarantee our homebuilding debt. Borrowings under both facilities are secured by certain mortgage loans held for sale. The mortgage loans pledged to secure the CP conduit facility are used as collateral for asset backed commercial paper issued by multi-seller conduits in the commercial paper market. At June 30, 2005, our total mortgage loans held for sale were $828.7 million. All mortgage company activities are financed with the mortgage warehouse facility, the CP conduit facility or internally generated funds. Both of our financial services credit facilities contain financial covenants with which we are in compliance.

Operating Cash Flow Activities

For the nine months ended June 30, 2005, we used $1.1 billion of cash in our operating activities, as compared to $563.0 million of cash used in such activities during the comparable period of the prior year. The increase in cash used in operating activities is due to our decision to fund inventory growth with $2.0 billion to support our planned home closings volume in the remainder of fiscal 2005 and future years.

A large portion of our cash invested in inventories represents purchases of land and lots that will be used to generate revenues and cash flows in future years. Since we control the amounts and timing of our investments in land and lots based on our inventory growth goals and our market opportunities, and because much of our investments in land and lots will not generate revenues in this fiscal year, we believe that cash flows from operating activities before inventory additions is currently a better indicator of our operational liquidity.

Investing Cash Flow Activities

For the nine months ended June 30, 2005 and 2004, cash used in investing activities represented net purchases of property and equipment, primarily model home furniture and office equipment. Such purchases are not significant relative to our total assets or cash flows and typically do not vary significantly from period to period.

Financing Cash Flow Activities

The majority of our short-term financing needs are funded with cash generated from operations and funds available under our homebuilding and financial services credit facilities. Long-term financing needs are generally funded with the issuance of new senior unsecured debt securities through the public capital markets. Our homebuilding senior and senior subordinated notes and borrowings under our homebuilding revolving credit facility are guaranteed by substantially all of our wholly-owned subsidiaries other than our financial services subsidiaries.

In October 2004, we issued $250 million of 4.875% senior notes due 2010. We used the proceeds from this offering for general corporate purposes, including land acquisition and development, home construction and homebuilding operations and other working capital needs.

In December 2004, we issued $300 million of 5.625% senior notes due 2016. We used the proceeds from this offering to repay borrowings under the revolving credit facility and for general corporate purposes, including land acquisition and development, home construction and homebuilding operations and other working capital needs.

In February 2005, we issued $300 million of 5.25% senior notes due 2015. We used the proceeds from this offering to repay borrowings under the revolving credit facility and for general corporate purposes, including land acquisition and development, home construction and homebuilding operations and other working capital needs.

In February 2005, our Board of Directors declared a four-for-three stock split (effected as a 33% stock dividend), paid on March 16, 2005 to common stockholders of record on March 1, 2005.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In July 2005, we issued $300 million of 5.375% senior notes due 2012. We used the proceeds from this offering for general corporate purposes, including the repayment of borrowings under our revolving credit facility and for the early redemption of our 9.375% senior notes due 2009.

During the three months ended June 30, 2005, our Board of Directors declared a quarterly cash dividend of $0.09 per common share, which was paid on May 20, 2005 to stockholders of record on May 6, 2005. In July 2005, our Board of Directors declared a quarterly cash dividend of $0.09 per common share, payable on August 19, 2005 to stockholders of record on August 5, 2005.

Changes in Capital Structure

In May 2005, our Board of Directors authorized the repurchase of up to $175.6 million of our common stock and up to $200 million of our outstanding debt securities, as market conditions warrant. As of June 30, 2005, we had $175.6 million remaining of the Board of Directors’ authorization for repurchases of common stock and $200 million remaining of the authorization for repurchases of debt securities.

OFF-BALANCE SHEET ARRANGEMENTS

In the ordinary course of business, we enter into land and lot option purchase contracts in order to procure land or lots for the construction of homes. Lot option contracts enable us to control significant lot positions with a minimal capital investment and substantially reduce the risks associated with land ownership and development. At June 30, 2005, we had $284.0 million in deposits to purchase land and lots with a total remaining purchase price of $5.7 billion. Only $64.7 million of the remaining purchase price is subject to specific performance clauses which may require us to purchase the land or lots upon the land seller meeting certain obligations. We consolidated certain variable interest entities and other inventory obligations with assets of $185.2 million.

In the normal course of business, we provide standby letters of credit and performance bonds, issued by third parties, to secure performance under various contracts. At June 30, 2005, outstanding standby letters of credit and performance bonds, the majority of which mature in less than one year, were $138.6 million and $1.6 billion, respectively.

LAND AND LOT POSITION AND HOMES IN INVENTORY

At June 30, 2005, about 54% of our total lot position of 323,000 lots was controlled under option or similar contracts. The following is a summary of our land/lot position at June 30, 2005:

Lots owned — developed and under development	150,000
Lots controlled under lot option and similar contracts	173,000
Total land/lots controlled	323,000
Percentage controlled under option	54%

At June 30, 2005, we had a total of approximately 30,000 homes under construction and in inventory, including approximately 1,700 model homes and approximately 350 unsold homes that had been completed for more than six months.

CRITICAL ACCOUNTING POLICIES

There have been no significant changes to our critical accounting policies during the nine months ended June 30, 2005, as compared to those we disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the annual report on Form 10-K for the year ended September 30, 2004.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SEASONALITY

We have historically experienced variability in our results of operations from quarter to quarter due to the seasonal nature of the homebuilding business. Historically, we have closed a greater number of homes in our third and fourth fiscal quarters than in our first and second fiscal quarters. As a result, our revenues and net income have been higher in the third and fourth quarters of our fiscal year. In fiscal 2004, 58% of our consolidated revenues and 62% of our net income were attributable to our operations in the third and fourth fiscal quarters. However, we can make no assurances that this trend will continue in this or any future fiscal years.

SAFE HARBOR STATEMENT AND RISKS

Certain statements contained in this report, as well as in other materials we have filed or will file with the Securities and Exchange Commission, statements made by us in periodic press releases and oral statements we make to analysts, stockholders and the press in the course of presentations about us, may be construed as “forward-looking statements” as defined in Section 21E of the Securities Exchange Act of 1934. These forward-looking statements typically include the words “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “goal”, “intend”, “objective”, “plan”, “projection”, “seek”, “strategy”, or other words of similar meaning. Any or all of the forward-looking statements included in this report and in any other of our reports or public statements may not approximate actual experience, and the expectations derived from them may not be realized, due to known or unknown risks and uncertainties. As a result, actual results may differ materially from the results discussed in and anticipated by the forward-looking statements. The following risks and uncertainties relevant to our business include factors we believe could adversely affect us. Other factors beyond those listed below could also adversely affect us.

-     changes in general economic, real estate and other conditions;

-     changes in interest rates and the availability of mortgage financing;

-     the effects of governmental regulations and environmental matters;

-     the uncertainties inherent in warranty and product liability claims matters;

-     competitive conditions within our industry;

-     our substantial debt;

-      the availability of capital; and

-      our ability to effect our growth strategies successfully.

We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, any further disclosures made on related subjects in subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted. Additional information about issues that could lead to material changes in performance is contained in our annual report on Form 10-K, which is filed with the Securities and Exchange Commission.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to interest rate risk on our long-term debt. We monitor our exposure to changes in interest rates and utilize both fixed and variable rate debt. For fixed rate debt, changes in interest rates generally affect the value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows.

We have mitigated our exposure to changes in interest rates on our variable rate bank debt by entering into interest rate swap agreements to obtain a fixed interest rate for a portion of the variable rate borrowings. Our interest rate swaps were not designated as hedges under SFAS No. 133 when it was adopted on October 1, 2000. We are exposed to market risk associated with changes in the fair values of the swaps, and such changes must be reflected in our income statements.

Our mortgage company is exposed to interest rate risk associated with its mortgage loan origination services. Interest rate lock commitments (IRLCs) are extended to borrowers who have applied for loan funding and who meet defined credit and underwriting criteria. Typically, the IRLCs have a duration of less than nine months. Some IRLCs are committed immediately to a specific investor through the use of best-efforts whole loan delivery commitments, while other IRLCs are funded prior to being committed to third-party investors. Forward sales of mortgage backed securities (FMBS) are used to protect uncommitted IRLCs against the risk of changes in interest rates. FMBS related to IRLCs are classified and accounted for as non-designated derivative instruments, with gains and losses recorded in current earnings. FMBS related to funded, uncommitted loans are designated as fair value hedges, with changes in the value of the derivative instruments recognized in current earnings, along with changes in the value of the funded, uncommitted loans. The effectiveness of the fair value hedges is continuously monitored and any ineffectiveness, which for the three months and nine months ended June 30, 2005 and 2004 was not significant, is recognized in current earnings.

The following table sets forth, as of June 30, 2005, for our debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value. In addition, the table sets forth the notional amounts, weighted average interest rates and estimated fair market value of our interest rate swaps. At June 30, 2005, the fair value of the interest rate swaps was a $6.4 million liability.

	Three Months
	Ending																					Fair value
	September 30,			Fiscal Year Ending September 30,																		at
	2005			2006			2007			2008			2009			Thereafter			Total			6/30/05
										($ in millions)
Debt:
Fixed rate	$	249.9		$	9.0		$	3.5		$	215.3		$	586.0		$	2,544.8		$	3,608.5		$	3,757.4
Average interest rate		8.4	%		7.5	%		5.6	%		7.6	%		7.3	%		7.0	%		7.2	%
Variable rate	$	—		$	708.4		$	—		$	50.0		$	—		$	—		$	758.4		$	758.4
Average interest rate		—			4.0	%		—			4.6	%		—			—			4.1	%
Interest Rate Swaps:
Variable to fixed	$	200.0		$	200.0		$	200.0		$	200.0		$	—		$	—		$	—		$	6.4
Average pay rate		5.1	%		5.1	%		5.1	%		5.0	%		—			—			—
Average receive rate	90-day LIBOR

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ITEM 4. CONTROLS AND PROCEDURES

The Company’s management has long recognized its responsibilities for developing, implementing and monitoring effective and efficient controls and procedures. As part of those responsibilities, as of June 30, 2005, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a — 15(e) under the Securities Exchange Act of 1934. Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective in timely alerting them to material information relating to the Company, including its consolidated subsidiaries, required to be included in the Company’s periodic filings with the Securities and Exchange Commission. There have been no changes in the Company’s internal controls over financial reporting during the quarter ended June 30, 2005 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 6. EXHIBITS

(a) Exhibits.

3.1	Amended and Restated Certificate of Incorporation, as amended, of the Company is incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q/A, filed with the Commission on February 18, 2003.
3.1(a)	Amendment to Amended and Restated Certificate of Incorporation, as amended, of the Company, effective February 6, 2003, is incorporated by reference from Exhibit 3.1(a) to the Company’s Quarterly Report on Form 10-Q/A, filed with the Commission on February 18, 2003.
3.2	Amended and Restated Bylaws of the Company are incorporated by reference from Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 1998, filed with the Commission on February 16, 1999.
4.1	Twenty-Fourth Supplemental Indenture, dated July 7, 2005, by and among the Company, the Guarantors named therein and American Stock Transfer & Trust Company, as trustee, relating to the 5.375% Senior Notes due 2012 issued by the Company (1).
10.1	Second Amendment to Amended and Restated Credit Agreement between DHI Mortgage Company, Ltd. and U.S. Bank National Association dated April 8, 2005 (2).
10.2*	Third Amendment to Amended and Restated Credit Agreement between DHI Mortgage Company, Ltd. and U.S. Bank National Association dated June 23, 2005.
10.3*	Seventh Omnibus Amendment, dated June 29, 2005, to Master Repurchase Agreement dated July 9, 2002, as amended, among CH Funding LLC. Calyon New York Branch (as successor in interest to Credit Lyonnais New York Branch), Atlantic Asset Securitization Corp., La Fayette Asset Securitization LLC, Falcon Asset Securitization Corporation, U.S. Bank National Bank Association, Lloyds TSB Bank PLC and DHI Mortgage Company, Ltd.
10.4*	Executive Compensation Summary — Named Executive Officers (COOs).
12.1*	Statement of Computation of Ratio of Earnings to Fixed Charges.
31.1*	Certificate of Chief Executive Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
31.2*	Certificate of Chief Financial Officer provided pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002.
32.1*	Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Company’s Chief Executive Officer.
32.2*	Certificate provided pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Company’s Chief Financial Officer.

*	Filed herewith
(1)	Incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K dated June 29, 2005 and filed with the SEC on July 6, 2005.
(2)	Incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated May 4, 2005 and filed with the SEC on May 4, 2005.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	D.R. HORTON, INC.
Date: August 9, 2005	By:	/s/ Bill W. Wheat
		Bill W. Wheat, on behalf of D.R. Horton, Inc.,
		as Executive Vice President and
		Chief Financial Officer (Principal Financial and
		Principal Accounting Officer)

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EX-10.2

EXHIBIT 10.2

THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

          This THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this “Amendment”), made and entered into as of June 23, 2005, is by and between DHI Mortgage Company, Ltd., a Texas limited partnership (the “Borrower”), and U.S. Bank National Association, a national banking association (the “Agent” and a “Lender”) and the other Lenders party hereto (collectively, the “Lenders”).

RECITALS

          1. The Lenders and the Borrower entered into an Amended and Restated Credit Agreement dated as of April 9, 2004 as amended by a First Amendment to Amended and Restated Credit Agreement dated as of September 22, 2004 and by a Second Amendment to Amended and Restated Credit Agreement dated as of April 8, 2005 (as amended, the “Credit Agreement”); and

          2. The Borrower desires to increase the Aggregate Commitment Amount under the Credit Agreement under the provisions of Section 10.11(d) and to make other changes to certain provisions of the Credit Agreement and the Agent and the Lenders have agreed to make such amendments, subject to the terms and conditions set forth in this Amendment.

AGREEMENT

          NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby covenant and agree to be bound as follows:

          Section 1. Capitalized Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement, unless the context shall otherwise require.

          Section 2. Amendments. The Credit Agreement is hereby amended as follows:

     2.1 The following new definitions are added to Section 1.01 of the Credit Agreement in appropriate alphabetical order:

     “Uncovered Mortgage Loans” means Eligible Mortgage Loans that are in the process of being bundled for sale with other similar Mortgage Loans, that are secured by a second Mortgage on the property covered thereby (including HELOC Mortgage Loans) or are Subprime Mortgage Loans, that are in each case not covered by a Take-Out Commitment.

     “Uncovered Mortgage Loan Sublimit” means five percent (5%) of the Aggregate Commitment Amounts.

     2.2 The following new Section 5.16 is added to the Credit Agreement:

          Section 5.16 Closing Procedures. The Borrower will provide closing instructions to each Closing Agent (as defined in the Amended and Restated Pledge and Security Agreement) which (a) require, in connection with the Mortgage Loans tablefunded by the Borrower, that (i) the Mortgage Note evidencing each such Mortgage Loan shall be endorsed to the Borrower, (ii) the assignment of the applicable Mortgage to the Borrower shall be recorded simultaneously with but separate from the related Mortgage and (iii) the Mortgage Note evidencing each such Mortgage Loan and other related loan documents shall be delivered to the Borrower promptly upon the closing of such Mortgage Loan, and (b) in the case of Mortgage Loans funded by a wire transfer of funds in accordance with Section 4.01(b)(i) of the Amended and Restated Pledge and Security Agreement, contain a statement substantially in the form set forth in Exhibit G. The Borrower shall review for accuracy and completeness each Mortgage Note, Mortgage, assignment and other document evidencing or securing each Mortgage Loan originated or purchased by the Borrower.

     2.3 Schedule 1 to the Credit Agreement is deleted and Schedule 1 attached hereto is inserted in its place as Schedule 1 to the Credit Agreement.

     2.4 Schedule 5 to the Credit Agreement is deleted and Schedule 5 attached hereto is inserted in its place as Schedule 5 to the Credit Agreement.

     2.5 Exhibit C to the Credit Agreement is deleted and Exhibit C hereto is inserted in its place as Exhibit C to the Credit Agreement.

     2.6 Exhibit G hereto is added to the Credit Agreement as Exhibit G.

          Section 3. Effectiveness of Amendments. The amendments contained in this Amendment shall become effective on June 23, 2005 once executed by the Borrower and the Lenders and once the Agent has received the following:

               (a) This Amendment and a Note in the principal amount of each Lender’s Commitment Amount from the Borrower to the each such Lender substantially in the form of Exhibit A to the Credit Agreement (together with this Amendment, the “Amendment Documents”);

               (b) A copy of the resolutions of the Board of Directors of the General Partner of the Borrower authorizing the execution, delivery and performance of this Amendment and the Notes certified as true and accurate by its Secretary or Assistant Secretary, along with a certification by such Secretary or Assistant Secretary (i) certifying that there has been no amendment to the Certificate of Limited Partnership or limited partnership agreement of the Borrower since true and accurate copies of the same were delivered to the Lender with a certificate of the Secretary of the Borrower dated April 9, 2004 (or, in the alternative, certifying copies of amendments to the same), and (ii) identifying each officer of the general partner of the Borrower authorized to execute this Amendment, the Notes and any other instrument or agreement executed by the Borrower in connection with this Amendment, and certifying as to specimens of such officer’s signature and such officer’s incumbency in such offices as such

officer holds; and

               (c) The Borrower shall have satisfied such other conditions as specified by the Agent, including payment of all unpaid legal fees and expenses incurred by the Agent through the date of this Amendment in connection with the Credit Agreement and the Amendment Documents.

          Section 4. Representations, Warranties, Authority, No Adverse Claim.

     4.1 Reassertion of Representations and Warranties, No Default. The Borrower hereby represents that on and as of the date hereof and after giving effect to this Amendment (a) all of the representations and warranties contained in the Credit Agreement are true, correct and complete in all respects as of the date hereof as though made on and as of such date, except for changes permitted by the terms of the Credit Agreement, and (b) there will exist no Default or Event of Default under the Credit Agreement as amended by this Amendment on such date which has not been waived by the Lenders.

     4.2 Authority, No Conflict, No Consent Required. The Borrower represents and warrants that the Borrower has the power and legal right and authority to enter into this Amendment and has duly authorized as appropriate the execution and delivery of this Amendment and other agreements and documents executed and delivered by the Borrower in connection herewith by proper partnership action, and none of the Amendment Documents nor the agreements contained herein or therein contravenes or constitutes a default under any agreement, instrument or indenture to which the Borrower is a party or a signatory or a provision of the Borrower’s partnership agreement or any other agreement or requirement of law, or result in the imposition of any Lien on any of its property under any agreement binding on or applicable to the Borrower or any of its property except, if any, in favor of the Lenders. The Borrower represents and warrants that no consent, approval or authorization of or registration or declaration with any Person, including but not limited to any governmental authority, is required in connection with the execution and delivery by the Borrower of the Amendment Documents or other agreements and documents executed and delivered by the Borrower in connection therewith or the performance of obligations of the Borrower therein described, except for those which the Borrower has obtained or provided and as to which the Borrower has delivered certified copies of documents evidencing each such action to the Lenders.

     4.3 No Adverse Claim. The Borrower warrants, acknowledges and agrees that no events have taken place and no circumstances exist at the date hereof which would give the Borrower a basis to assert a defense, offset or counterclaim to any claim of the Lenders with respect to the Obligations.

          Section 5. Affirmation of Credit Agreement, Further References, Affirmation of Security Interest. The Agent on behalf of the Lenders and the Borrower each acknowledge and affirm that the Credit Agreement, as hereby amended, is hereby ratified and confirmed in all respects and all terms, conditions and provisions of the Credit Agreement, except as amended by this Amendment, shall remain unmodified and in full force and effect. All

references in any document or instrument to the Credit Agreement are hereby amended and shall refer to the Credit Agreement as amended by this Amendment. The Borrower confirms to the Lenders that the Obligations are and continue to be secured by the security interest granted by the Borrower in favor of the Lenders under the Security Agreement, and all of the terms, conditions, provisions, agreements, requirements, promises, obligations, duties, covenants and representations of the Borrower under such documents and any and all other documents and agreements entered into with respect to the obligations under the Credit Agreement are incorporated herein by reference and are hereby ratified and affirmed in all respects by the Borrower.

          Section 6. Merger and Integration, Superseding Effect. This Amendment, from and after the date hereof, embodies the entire agreement and understanding between the parties hereto and supersedes and has merged into this Amendment all prior oral and written agreements on the same subjects by and between the parties hereto with the effect that this Amendment, shall control with respect to the specific subjects hereof and thereof.

          Section 7. Severability. Whenever possible, each provision of this Amendment and the other Amendment Documents and any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be interpreted in such manner as to be effective, valid and enforceable under the applicable law of any jurisdiction, but, if any provision of this Amendment, the other Amendment Documents or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto shall be held to be prohibited, invalid or unenforceable under the applicable law, such provision shall be ineffective in such jurisdiction only to the extent of such prohibition, invalidity or unenforceability, without invalidating or rendering unenforceable the remainder of such provision or the remaining provisions of this Amendment, the other Amendment Documents or any other statement, instrument or transaction contemplated hereby or thereby or relating hereto or thereto in such jurisdiction, or affecting the effectiveness, validity or enforceability of such provision in any other jurisdiction.

          Section 8. Successors. The Amendment Documents shall be binding upon the Borrower and the Lenders and their respective successors and assigns, and shall inure to the benefit of the Borrower and the Lenders and the successors and assigns of the Lenders.

          Section 9. Legal Expenses. The Borrower agrees to pay or reimburse the Agent, upon execution of this Amendment, for all reasonable out-of-pocket expenses paid or incurred by the Agent, including filing and recording costs and fees, charges and disbursements of outside counsel to the Agent (determined on the basis of such counsel’s generally applicable rates, which may be higher than the rates such counsel charges the Agent in certain matters) and/or the allocated costs of in-house counsel incurred from time to time, in connection with the Credit Agreement, including in connection with the negotiation, preparation, execution, collection and enforcement of the Amendment Documents and all other documents negotiated, prepared and executed in connection with the Amendment Documents, and in enforcing the obligations of the Borrower under the Amendment Documents, and to pay and save the Agent harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of the Amendment Documents, which obligations of the Borrower shall survive any termination of the Credit Agreement.

          Section 10. Headings. The headings of various sections of this Amendment have been inserted for reference only and shall not be deemed to be a part of this Amendment.

          Section 11. Counterparts. The Amendment Documents may be executed in several counterparts as deemed necessary or convenient, each of which, when so executed, shall be deemed an original, provided that all such counterparts shall be regarded as one and the same document, and either party to the Amendment Documents may execute any such agreement by executing a counterpart of such agreement.

          Section 12. Governing Law. THE AMENDMENT DOCUMENTS SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAW PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS, THEIR HOLDING COMPANIES AND THEIR AFFILIATES.

          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date and year first above written.

BORROWER:
	DHI MORTGAGE COMPANY, LTD.
	By: DHI Mortgage Company GP, Inc.
	Its: General Partner
	By: /s/ Mark C. Winter
	Title: CFO/EVP

STATE OF TEXAS

COUNTY OF TRAVIS

On this the 22 day of June, 2005, personally appeared Mark C. Winter, as CFO/EVP of DHI Mortgage Company, GP, Inc., a Delaware corporation, as general partner of DHI Mortgage Company , Ltd., a Texas limited partnership (the “Company”), and before me executed this Second Amendment to Amended and Restated Credit Agreement, on behalf of the Company.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

/s/ Melody A. Hansen

Signature of Notary Public, State of Texas

(Print, Type or Stamp Commissioned Name of Notary Public)

Personally known___; OR Produced Identification___

Type of ID produced____________

               (NOTARIAL SEAL)

AGENT & LENDER:
	U.S. BANK NATIONAL ASSOCIATION
	By:	/s/ Kathleen Connor
		Kathleen Connor      Vice President

(USB Signature Page Third Amendment)

COMERICA BANK
By:	/s/ Robert W. Marr
	Robert W. Marr
	Vice President

NATIONAL CITY BANK OF KENTUCKY
By:	/s/ Jerry W. Johnson
Name: Jerry W. Johnson
Title: Executive Vice President

COLONIAL BANK, N.A.
By:	/s/ Amy Nunneley
	Amy Nunneley Senior Vice President

STATE OF ALABAMA
COUNTY OF JEFFERSON

On this the 22 day of June, 2005, personally appeared Amy J. Nunneley, as Senior Vice Pres. of Colonial Bank, N.A., an Alabama corporation (the “Bank”), and before me executed this Amended and Restated Credit Agreement, on behalf of the Bank.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

/s/ Mary Katherine Jackson

Signature of Notary Public, State of Alabama

Mary Katherine Jackson

(Print, Type or Stamp Commissioned Name of Notary Public)

Personally known X; OR Produced Identification___

Type of ID produced__________________

(NOTARIAL SEAL)

BANK OF AMERICA, N.A.
By:	/s/ Carolyn Warren
	Carolyn Warren Senior Vice President

BNP PARIBAS
By:	/s/ Jeff Tebeaux
	Jeff Tebeaux
	Vice President
By:	/s/ Henry Setina
	Henry Setina
	Director

WASHINGTON MUTUAL BANK, FA
By:	/s/ Cyndi R. Lopez
	Cyndi R. Lopez
	Vice President

JPMORGAN CHASE BANK
By:	/s/ Cynthia E. Crites
	Cynthia E. Crites
	Senior Vice President

SCHEDULE 1

ELIGIBLE MORTGAGE LOAN

     “Eligible Mortgage Loan” means a Mortgage Loan with respect to which each of the following statements is accurate and complete (and the Borrowers by including such Mortgage Loan in any computation of the Borrowing Base shall be deemed to so represent to Agent and Lenders at and as of the date of such computation):

     (i) Such Mortgage Loan is a binding and valid obligation of the Obligor thereon, in full force and effect and enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization or other similar terms affecting creditor’s rights in general and by general principles of equity;

     (ii) Such Mortgage Loan is genuine in all respects as appearing on its face and as represented in the books and records of the Borrowers, and all information set forth therein is true and correct;

     (iii) To the best knowledge of the Borrowers, such Mortgage Loan is free of any default (other than as permitted by subparagraph (iv) below) of any party thereto (including the Borrowers), counterclaims, offsets and defenses, including the defense of usury, and from any rescission, cancellation or avoidance, and all right thereof, whether by operation of law or otherwise;

     (iv) No payment under such Mortgage Loan is more than thirty (30) days past due the payment due date set forth in the underlying Mortgage Note and Mortgage;

     (v) Such Mortgage Loan contains the entire agreement of the parties thereto with respect to the subject matter thereof, has not been modified or amended in any respect not expressed in writing therein and is free of concessions or understandings with the Obligor thereon of any kind not expressed in writing therein;

     (vi) Such Mortgage Loan is in all respects in accordance with all Requirements of Law applicable thereto, including, without limitation, the federal Consumer Credit Protection Act and the regulations promulgated thereunder and all applicable usury laws and restrictions, and all notices, disclosures and other statements or information required by law or regulation to be given, and any other act required by law or regulation to be performed, in connection with such Mortgage Loan have been given and performed as required;

     (vii) All advance payments and other deposits on such Mortgage Loan have been paid in cash, and no part of said sums has been loaned, directly or indirectly, by the Borrowers to the Obligor, and, other than as disclosed to Agent in writing, there have been no prepayments;

     (viii) Such Mortgage Loan was originated, purchased by the Borrowers or converted from a variable rate Mortgage Loan to a fixed rate Mortgage Loan, whichever is latest not more than ninety (90) days prior to the inclusion of such Mortgage Loan in any computation of the Borrowing Base and matures within 30 years after such date of origination;

     (ix) At all times such Mortgage Loan will be free and clear of all Liens, except in favor of Agent for the benefit of Lenders and any other Lien which has been disclosed to Agent in writing and is permitted hereunder;

     (x) The Property covered by such Mortgage Loan is insured against loss or damage by fire and all other hazards normally included within standard extended coverage in accordance with the provisions of such Mortgage Loan with the Borrowers named as a loss payee thereon;

     (xi) The Required Mortgage Documents have been delivered to Agent prior to the inclusion of such Mortgage Loan in any computation of the Borrowing Base or, if such items have not been delivered to Agent on or prior to the date such Mortgage Loan is first included in any computation of the Borrowing Base, (1) the Borrower has agreed to pledge and deliver all Required Mortgage Documents pursuant to an Agreement to Pledge delivered to Agent prior to such inclusion, and (2) the Collateral Value of such Mortgage Loan when added to the Collateral Value of all other Mortgage Loans for which Agent has not received the Required Mortgage Documents does not exceed the Wet Warehousing Sublimit, provided that, all Required Documents with respect to such Mortgage Loan shall be delivered to Agent within seven (7) Business Days after the date of the borrowing request with respect thereto and all other documents requested by Agent pursuant to Section 4.02 of the Security Agreement shall be delivered to Agent within five Business Days after such request.

     (xii) If such Mortgage Loan is included in the Borrowing Base and has been withdrawn from the possession of Agent on terms and subject to conditions set forth in the Security Agreement:

     (1) If such Mortgage Loan was withdrawn by the Borrowers for purposes of correcting clerical or other non-substantive documentation problems, the promissory note and other documents relating to such Mortgage Loan are returned to Agent within nineteen (19) calendar days from the date of withdrawal; and the Collateral Value of such Mortgage Loan when added to the Collateral Value of other Mortgage Loans which have been similarly released to the Borrowers and have not been returned does not exceed $5,000,000;

     (2) If such Mortgage Loan was shipped by Agent directly to a permanent investor for purchase or to a custodian for the formation of a pool, the full purchase price therefor has been received by Agent (or such Mortgage Loan has been returned to Agent) within forty-five (45) days (seventy-five (75) days in the case if such Mortgage Loan is a housing bond program) from the date of shipment by Agent.

     (xiii) If such Mortgage Loan is a Jumbo Mortgage Loan, the Collateral Value of such Mortgage Loan when added to the Collateral Value of all other Jumbo Mortgage Loans does not exceed the Jumbo Sublimit.

     (xiv) If such Mortgage Loan is a Nonconforming Mortgage Loan, the Collateral Value of such Mortgage Loan when added to the Collateral Value of all the Nonconforming Mortgage Loans does not exceed the Nonconforming Sublimit;

     (xv) If such Mortgage Loan is a HELOC Mortgage Loan, the Collateral Value of such Mortgage Loan when added to the Collateral Value of all other HELOC Mortgage Loans does not exceed the HELOC Mortgage Loan Sublimit.

     (xvi) If such Mortgage Loan is an Aged Loan, the Collateral Value of such Mortgage Loan when added to the Collateral Value of all Mortgage Loans that are Aged Loans does not exceed the Aged Loan Sublimit;

     (xvii) If such Mortgage Loan is an Uncovered Mortgage Loan, the Collateral Value of such Mortgage Loan when added to the Collateral Value of all Mortgage Loans that are Uncovered Mortgage Loans does not exceed the Uncovered Mortgage Loan Sublimit;

     (xviii) Such Mortgage Loan has not been included in the Borrowing Base for more than (A) thirty (30) days, if such Mortgage Loan is an Uncovered Mortgage Loan, (B) ninety (90) days, if such Mortgage Loan is a Nonconforming Mortgage Loan or a HELOC Mortgage Loan (excluding HELOC Mortgage Loans that are Uncovered Mortgage Loans), (C) one hundred twenty (120) days, if such Mortgage Loan is a Jumbo Mortgage Loan, (D) one hundred twenty (120) days, if such Mortgage Loan is a Conforming Mortgage Loan, Conforming Non-Agency Mortgage Loan or (E) three hundred sixty (360) days, if such Mortgage Loan is an Aged Loan;

     (xviii) Unless such Mortgage Loan is an Uncovered Mortgage Loan, such Mortgage Loan is covered by a Take-Out Commitment which is in full force and effect, and the Borrowers and such Mortgage Loan are in full compliance therewith;

     (xix) Such Mortgage Loan is secured by a first or second Mortgage on Property consisting of a completed one-to-four unit single family residence which is not used for commercial purposes and which is not a construction loan; and

     (xx) The face amount of the Mortgage Note underlying such Mortgage Loan does not exceed $1,000,000.

     Agent may, in its discretion, waive one or more of the foregoing eligibility requirements with respect to any Mortgage Loan, provided that the aggregate Collateral Value of all Mortgage Loans with respect to which such eligibility requirements have been waived shall not at any time exceed $3,000,000.

SCHEDULE 5

COMMITMENT AMOUNTS AND PERCENTAGE SHARES

From June 23, 2005 to October 31, 2005

	Commitment		Percentage
	Amount		Share
U.S. Bank National Association
Comerica Bank
National City Bank of Kentucky
Colonial Bank, N.A.
Bank of America, N.A.
BNP Paribas
Washington Mutual Bank, FA
JPMorgan Chase Bank
TOTAL	$	450,000,000		100	%

From and after October 31, 2005

	Commitment		Percentage
	Amount		Share
U.S. Bank National Association
Comerica Bank
National City Bank of Kentucky
Colonial Bank, N.A.
Bank of America, N.A.
BNP Paribas
Washington Mutual Bank, FA
JPMorgan Chase Bank
TOTAL	$	300,000,000		100	%

EXHIBIT C TO
CREDIT AGREEMENT

FORM OF
BORROWING BASE CERTIFICATE

[On the Company’s Letterhead]

U.S. Bank National Association, as Agent
800 Nicollet Mall
Minneapolis, Minnesota 55402
Attention: Mortgage Banking Services Division BC-MN-HO3B

Ladies and Gentlemen:

          We submit this certificate to you in accordance with the terms of the Amended and Restated Credit Agreement dated as of April 9, 2004 (as amended and as the same may be amended, supplemented or restated from time to time, the “Credit Agreement”) between DHI Mortgage Company, Ltd., the lenders party thereto (the “Lenders”) and U.S. Bank National Association, as Agent for the Lenders (in such capacity, the “Agent”). Each capitalized term used herein and not defined herein has the same meaning ascribed to such term in the Credit Agreement or the Security Agreement.

          The undersigned hereby certifies the following as of the close of business on ___, ___the Borrowing Base was calculated as follows:

Collateral Value

(a)	Pledged Mortgage Loan			$
		Conforming Mortgage Loans	$
		Conforming Non-Agency Loans	$
		Nonconforming Mortgage Loans	$
		Jumbo Mortgage Loans	$
		HELOC Mortgage Loans	$
		Aged Loans	$
		Uncovered Mortgage Loans	$

               Less:

(b)	Pledged Mortgage Loans with No
	Collateral Value (i.e., not
	Eligible Mortgage Loans)				$
		Conforming Mortgage Loans and Jumbo Mortgage Loans — 120 days or more since origination or acquisition;
		Jumbo Mortgage Loans — 120 days or more since origination or acquisition $___
		Nonconforming Mortgage Loans — 90 days or more since origination or acquisition $___
		HELOC Mortgage Loans-90 days or more since origination or acquisition $___
		Pledged more than 90 days	$
		Promissory Note and/or Collateral Documents
		not returned or purchased by an Investor
		(90/120/360 days for Aged Loans)	$
				(less than 120 days)
			$
				(from 120 to 360 days)
		Uncovered Mortgage Loans-30 days or
		more since origination or acquisition $___
		Collateral Document not returned (19 days)	$
		In default (one full reporting period) Requested documents not delivered (5 Business Days) $___	$
		Promissory Note and/or Collateral Documents not delivered (wet funding loans; 7 Business Days) $___
		Wet funding loans in excess of sublimit	$
		Wet funding loans not closed	$
		Jumbo Mortgage Loans in excess
		of applicable sublimit $___

Nonconforming Mortgage Loans in excess of applicable sublimit $___
HELOC Mortgage Loans in excess of applicable sublimit $___
Aged Loans in excess of Aged Loan Sublimit $___
Uncovered Mortgage Loans in excess of applicable sublimit $___
Not marketable	$
Agent does not have perfected, first priority security interest	$
Other ineligible	$

(c)	Eligible Mortgage Loans ((a) — (b))	$
(d)	2% of (c)	$
(e)	5% of loans included in Aged Loan Sublimit and included in Borrowing Base more than 120 days	$
(f)	Total Collateral Value (Borrowing Base)((c) minus (d)) minus (e)	$

     Attached hereto is a schedule of the “Pledged Mortgage Loans” (as defined in the Security Agreement) that have no Collateral Value at the date hereof.

Dated: ___, 20___
	DHI MORTGAGE COMPANY, LTD.
	By
	Its

EXHIBIT G TO Third Amendment
and to Credit Agreement

Statement to be included in Closing Instructions

to Closing Agents for Wet Funded Loans

     “You are hereby notified that U.S. Bank National Association (the “Bank”) as agent for various lenders, has a security interest in the deed of trust or mortgage note, the deed of trust or mortgage and all other supporting documents for the above-referenced loan. Unless the Bank otherwise instructs you, (i) if the mortgage loan is not funded within two (2) business days after your receipt of funds from the Bank, said funds are to be returned by you to: U.S. Bank National Association, Minneapolis, Minnesota, ABA No. 091000022 for credit to our Funding and Settlement Account No. 104756234365, and (ii) all loan documents are to be returned to us by the second business day after settlement.

EX-10.3

EXHIBIT 10.3

SEVENTH OMNIBUS AMENDMENT

     THIS SEVENTH OMNIBUS AMENDMENT (this “Amendment”), dated as of June 29, 2005, is entered into by and among CH FUNDING, LLC, (the “Borrower”), ATLANTIC ASSET SECURITIZATION CORP, as an Issuer (“Atlantic”), LA FAYETTE ASSET SECURITIZATION LLC, as an Issuer (“La Fayette”), FALCON ASSET SECURITIZATION CORPORATION, as an Issuer (“Falcon”), CALYON NEW YORK BRANCH, successor in interest to Credit Lyonnais New York Branch, as the Administrative Agent (the “Administrative Agent”), as a Bank and as a Managing Agent (“Calyon”), JPMORGAN CHASE BANK, NATIONAL ASSOCIATION (“JPMC”), successor in interest to Bank One, NA (Main Office Chicago) (“Bank One”), as a Bank and as a Managing Agent, U.S. BANK NATIONAL ASSOCIATION, as the Collateral Agent (“U.S. Bank”), LLOYDS TSB BANK PLC, a banking corporation organized under the laws of England (hereinafter, together with its successors and assigns, “Lloyds”), as a Bank, and DHI MORTGAGE COMPANY, LTD., formerly known as CH Mortgage Company I, Ltd., as the Servicer (the “Servicer”) and as the Seller (the “Seller”). Capitalized terms used and not otherwise defined herein are used as defined in the related Operative Documents (as defined below).

RECITALS

     WHEREAS, the Servicer, as the Seller, and the Borrower, as the Purchaser, entered into that certain Master Repurchase Agreement and Addendum to the Master Repurchase Agreement incorporated therein, dated as of July 9, 2002, as amended by the Omnibus Amendment, dated as of August 26, 2002, by and among the Borrower, Atlantic, the Administrative Agent, and the Servicer (the “First Omnibus Amendment”) and the Second Omnibus Amendment, dated as of November 25, 2002, by and among the Borrower, Atlantic, the Administrative Agent and the Servicer (the “Second Omnibus Amendment”) (as the same may be amended, restated, supplemented or modified from time to time, the “Repurchase Agreement”);

     WHEREAS, the Borrower, the Administrative Agent and U.S. Bank entered into that certain Collateral Agency Agreement, dated as of July 9, 2002, as amended by the First Omnibus Amendment and the Second Omnibus Amendment (the “Collateral Agency Agreement”);

     WHEREAS, the Borrower, as Debtor, the Administrative Agent, U.S. Bank and the Servicer entered into that certain Security Agreement, dated as of July 9, 2002, as amended by the Third Omnibus Amendment, dated as of April 18, 2003, by and among the Borrower, Atlantic, the Administrative Agent and the Servicer (the “Third Omnibus Amendment”) (as the same may be amended, restated, supplemented or modified from time to time, the “Security Agreement”);

     WHEREAS, the Borrower, Atlantic, Falcon, Bank One, Lloyds, the Administrative Agent, and the Servicer, have entered into that certain Amended and Restated Loan Agreement, dated as of July 25, 2003, which incorporates the Loan Agreement amendments contained in the First Omnibus Amendment, the Second Omnibus Amendment and the Third Omnibus Amendment and completely replaces and supplants such Omnibus Amendments (as the same may be amended, restated, supplemented or modified from time to time, the “Restated Loan

1

Agreement” and, collectively with the Repurchase Agreement, the Collateral Agency Agreement and the Security Agreement, the “Operative Documents);

     WHEREAS, the Borrower, the Administrative Agent, U.S. Bank and the Servicer have entered into that certain Fourth Omnibus Amendment, dated as of July 25, 2003, which completely replaced and supplanted the preceding Omnibus Amendments;

     WHEREAS, the Borrower, Calyon, U.S. Bank, Bank One, Lloyds, Danske Bank A/S, Cayman Islands Branch (together with its successors and assigns, “Danske”), and the Servicer entered into the Fifth Omnibus Amendment, dated as of December 22, 2003 (the “Fifth Omnibus Amendment”), relating to certain amendments to the Operative Documents;

     WHEREAS, the Borrower, Calyon, Bank One, Lloyds, Danske, and the Servicer entered into the Sixth Omnibus Agreement, dated as of July 7, 2004 (the “Sixth Omnibus Amendment”), relating to certain amendments to the Operative Documents;

     WHEREAS, via certain assignment agreements dated as of the date hereof, Danske has assigned 100% of its interest to Calyon and Calyon has assigned a portion of such interest to Lloyds; and

     WHEREAS, the parties hereto desire to add La Fayette, as an Issuer, and to further amend the Operative Documents as hereinafter set forth.

     NOW, THEREFORE, the parties agree as follows:

Section 1. Amendment to Repurchase Agreement.

     a. The definition of “Advance Rate” is hereby deleted in its entirety and replaced with the following:

     “Advance Rate” means (i) with respect to a Conforming Loan or a Jumbo Loan, ninety-eight percent (98%), (ii) with respect to an Alt-A Loan, ninety-seven percent (97%), or, if a FICO Score Trigger Event has occurred and is continuing, as reported to the Collateral Agent by the Administrative Agent, then zero, (iii) with respect to a Second-Lien Loan or a Super Jumbo Loan, ninety-five percent (95%) and (iv) with respect to a Subprime Loan, ninety percent (90%).

     b. The definition of “Annual Extension Date” is hereby deleted in its entirety and replaced with the following:

     “Annual Extension Date” shall mean (i) June 28, 2006, and (ii) thereafter, if consented to by the Lenders, the Managing Agents and the Administrative Agent pursuant to Section 2.1(b), the date that is specified by the Lenders, the Managing Agents and the Administrative Agent in the applicable consent, which date shall not be more than 364 days following the then effective Annual Extension Date; provided, however, that any extension of the Annual Extension Date shall not extend beyond the Facility Termination Date.

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     c. The definition of “CL New York Group” hereby deleted in its entirety and replaced with the following:

     “CL New York Group” means Atlantic, CL New York, La Fayette and each other Group Bank of Atlantic.

     d. The definition of “Collateral Value” is hereby amended as follows:

     i. clause (b) is hereby deleted in its entirety and replaced with the following:

     at any time, the portion of total Collateral Value that may be attributable to Super Jumbo Loans shall not exceed ten percent (10%) of the Maximum Facility Amount, which percentage represents 50% of the 20% set forth in clause (a) above;

     ii. clause (c) is hereby deleted in its entirety and replaced with the following:

     at any time, the portion of total Collateral Value that may be attributable to Alt-A Loans shall not exceed forty-five percent (45%) of the Maximum Facility Amount; provided that (i) no Obligor on any Alt-A Loan shall have a FICO Score of less than 660, and (ii) each of the Alt-A Loans shall have a Loan-to-Value Ratio of no more than 95% and a Combined Loan-to-Value Ratio of no more than 100%;

     iii. clause (d) is inserted as follows:

     at any time, the portion of total Collateral Value that may be attributable to Subprime Loans shall not exceed five (5%) of the Maximum Facility Amount; provided that (i) no Obligor on any Subprime Loan shall have a FICO Score of less than 600, and (ii) each of the Subprime Loans shall have a Loan-to-Value Ratio of no more than 90%;

     iv. clause (g) is hereby deleted in its entirety and replaced with the following:

     at any time, (i) the portion of total Collateral Value that may be attributable to Mortgage Loans that have been Eligible Mortgage Loans owned by the Borrower for more than 120 days shall not exceed ten percent (10%) of the Maximum Facility Amount (except for Subprime Loans, which, if owned by the Borrower for more than 120 days, shall be zero) and (ii) the portion of total Collateral Value that may be attributable to Mortgage Loans that have been Eligible Mortgage Loans owned by the Borrower for more than 180 days shall be zero (except for Subprime Loans, which, if owned by the Borrower for more than 120 days, shall be zero);

          v. in clause (i), replace both occurrences of the words “within nine (9) Business Days after the date the Assignment was delivered to the Collateral Agent” with the

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words “within nine (9) Business Days after the date of origination of the Special Mortgage Loan”; and

          vi. “; and” is hereby inserted at the end of clause (j), and new clause (k) is inserted as follows:

     at any time, the portion of total Collateral Value that may be attributable to Second-Lien Loans shall not exceed five percent (5%) of the Maximum Facility Amount, of which no more than two percent (2%), which percentage represents 40% of the 5% set forth in the preceding clause, may remain uncovered by a Take-Out Commitment, and any such uncovered Second-Lien Loan shall (i) not remain uncovered for longer than 14 calendar days and (ii) carry an adjustable interest rate; provided that (A) no Obligor on any Second-Lien Loan shall have a FICO Score of less than 680 and (B) each of the Second-Lien Loans shall have a Combined Loan-to-Value Ratio of no more than 100%.

     e. The following definition is inserted after the definition of “Collections”:

     “Combined Loan-to-Value Ratio” means, with respect to any Mortgage Loan, the fraction, expressed as a percentage found by dividing the original principal balance of all Mortgage Loans secured by a particular property by the value of such Mortgage Loans, such value being measured by (i) the appraised value of such property at such time, if a Mortgage Loan is a refinance of an existing loan or (ii) the lower of the sales price of the related property at the time of origination of a Mortgage Loan or the appraised value of such property at such time, if a Mortgage Loan is a purchase money loan.

     f. Clause (b) of the definition of “Eligible Mortgage Loan” is hereby deleted in its entirety and replaced with the following:

     that is a Conforming Loan, a Jumbo Loan, a Subprime Loan, a Second-Lien Loan or an Alt-A Loan;

     g. The following definition is hereby inserted after the definition of “FHA Loan”:

     “FICO Score” means, with respect to the Obligor under a particular Mortgage Loan, a credit rating established by Fair Isaac Corporation.

     h. The following definition is hereby inserted after the definition of “FICO Score”:

     “FICO Score Trigger Event” means that (i) the Pool Weighted FICO Score Average has been reported, in a Servicer Monthly Report, as less than 710, (ii) a period of seven Business Days has elapsed from the date of receipt of such report by the Administrative Agent and (iii) the Servicer has not provided to the Administrative Agent a revised Pool Weighted FICO Score Average that exceeds 710.

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     i. The definition of “Issuer Facility Amount” is hereby deleted in its entirety and replaced with the following:

     “Issuer Facility Amount” means (a) with respect to Atlantic and La Fayette, on an aggregate basis, $400,000,000 and (b) with respect to Falcon, on an aggregate basis, $100,000,000. Any reduction (or termination) of the Maximum Facility Amount pursuant to the terms of this Agreement shall reduce ratably (or terminate) the Issuer Facility Amount of each Issuer.

     j. The following definition is hereby inserted after the definition of “Jumbo Loan”:

     “La Fayette” means La Fayette Asset Securitization LLC, a Delaware limited liability company.

     k. The definition of “Maximum Facility Amount” is hereby deleted in its entirety and replaced with the following:

     “Maximum Facility Amount” means $500,000,000.00, as such amount may be reduced pursuant to Section 2.1(c) of the Loan Agreement.”

     l. The definition of “Non-conforming Loan” is hereby deleted in its entirety and replaced with the following:

     “Non-Conforming Loan” means a Subprime Loan, a Jumbo Loan or an Alt-A Loan.

     m. The following definition is hereby inserted after the definition of “Person”:

     “Pool Weighted FICO Score Average” means, as of any Collateral Reporting date, the ratio of (a) the sum, for all Alt-A Loans, of the product for each Alt-A Loan of (i) its FICO Score and (ii) its original principal balance to (b) the sum of the original principal balances of all Alt-A Loans.

     n. The following definition is hereby inserted after the definition of “S&P”:

     “Second-Lien Loan” means a Mortgage Loan secured by particular property with respect to which at least one other higher-priority Mortgage Loan exists secured by the same property.

     o. The following definition is hereby inserted after the definition of “Subordination Agreement”:

     “Subprime Loan” means a Mortgage Loan (other than a Conforming Loan, a Jumbo Loan, or Alt-A Loan) that (1) is underwritten by an Approved Investor, (2) matches all applicable requirements for purchase under the requirements of a Take-Out Commitment specifically issued for the purchase of such Mortgage Loan, and (3) differs from a Conforming Loan because of the credit quality of the Obligor, and is originated by the Originator or by a

5

correspondent of the Originator using the established underwriting guidelines for subprime loans of the Originator, which are the same underwriting guidelines that the Originator uses to originate subprime loans for sales into the secondary mortgage market.

p. Section 5.22 is hereby amended by

          i. replacing the words “within nine (9) Business Days after the date of transfer hereunder of any Special Mortgage Loan from the Seller” with the words “within nine (9) Business Days after the date of origination of the Special Mortgage Loan”; and

          ii. replacing both occurrences of the words “within nine (9) Business Days after the date the Assignment was delivered to the Collateral Agent” with the words “within nine (9) Business Days after the date of origination of the Special Mortgage Loan”.

Section 2. Amendment to Collateral Agency Agreement.

     a. The definition of “Advance Rate” is hereby deleted in its entirety and replaced with the following:

     “Advance Rate” means (i) with respect to a Conforming Loan or a Jumbo Loan, ninety-eight percent (98%), (ii) with respect to an Alt-A Loan, ninety-seven percent (97%), or, if a FICO Score Trigger Event has occurred and is continuing, as reported to the Collateral Agent by the Administrative Agent, then zero, (iii) with respect to a Second-Lien Loan or a Super Jumbo Loan, ninety-five percent (95%) and (iv) with respect to a Subprime Loan, ninety percent (90%).

     b. The definition of “Annual Extension Date” is hereby deleted in its entirety and replaced with the following:

     “Annual Extension Date” shall mean (i) June 28, 2006, and (ii) thereafter, if consented to by the Lenders, the Managing Agents and the Administrative Agent pursuant to Section 2.1(b), the date that is specified by the Lenders, the Managing Agents and the Administrative Agent in the applicable consent, which date shall not be more than 364 days following the then effective Annual Extension Date; provided, however, that any extension of the Annual Extension Date shall not extend beyond the Drawdown Termination Date.

     c. The definition of “Collateral Value” is hereby amended as follows:

          i. clause (b) is hereby deleted in its entirety and replaced with the following:

     at any time, the portion of total Collateral Value that may be attributable to Super Jumbo Loans shall not exceed ten percent (10%) of the Maximum Facility Amount, which percentage represents 50% of the 20% set forth in clause (a) above;

          ii. clause (c) is hereby deleted in its entirety and replaced with the following:

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     at any time, the portion of total Collateral Value that may be attributable to Alt-A Loans shall not exceed forty-five percent (45%) of the Maximum Facility Amount; provided that (i) no Obligor on any Alt-A Loan shall have a FICO Score of less than 660, and (ii) each of the Alt-A Loans shall have a Loan-to-Value Ratio of no more than 95% and a Combined Loan-to-Value Ratio of no more than 100%;

          iii. clause (d) is inserted as follows:

     at any time, the portion of total Collateral Value that may be attributable to Subprime Loans shall not exceed five (5%) of the Maximum Facility Amount; provided that (i) no Obligor on any Subprime Loan shall have a FICO Score of less than 600, and (ii) each of the Subprime Loans shall have a Loan-to-Value Ratio of no more than 90%;

          iv. clause (g) is hereby deleted in its entirety and replaced with the following:

     at any time, (i) the portion of total Collateral Value that may be attributable to Mortgage Loans that have been Eligible Mortgage Loans owned by the Borrower for more than 120 days shall not exceed ten percent (10%) of the Maximum Facility Amount (except for Subprime Loans, which, if owned by the Borrower for more than 120 days, shall be zero) and (ii) the portion of total Collateral Value that may be attributable to Mortgage Loans that have been Eligible Mortgage Loans owned by the Borrower for more than 180 days shall be zero (except for Subprime Loans which, if owned by the Borrower for more than 120 days, shall be zero);

          v. in clause (i), replace both occurrences of the words “within nine (9) Business Days after the date the Assignment was delivered to the Collateral Agent” with the words “within nine (9) Business Days after the date of origination of the Special Mortgage Loan”; and

          vi. “; and” is hereby inserted at the end of clause (j), and new clause (k) is inserted as follows:

     at any time, the portion of total Collateral Value that may be attributable to Second-Lien Loans shall not exceed five percent (5%) of the Maximum Facility Amount, of which no more than two percent (2%), which percentage represents 40% of the 5% set forth in the preceding clause, may remain uncovered by a Take-Out Commitment, and any such uncovered Second-Lien Loan shall (i) not remain uncovered for longer than 14 calendar days and (ii) carry an adjustable interest rate; provided that (A) no Obligor on any Second-Lien Loan shall have a FICO Score of less than 680 and (B) each of the Second-Lien Loans shall have a Combined Loan-to-Value Ratio of no more than 100%.

     d. The following definition is inserted after the definition of “Collection Account”:

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     “Combined Loan-to-Value Ratio” means, with respect to any Mortgage Loan, the fraction, expressed as a percentage found by dividing the original principal balance of all Mortgage Loans secured by a particular property by the value of such Mortgage Loans, such value being measured by (i) the appraised value of such property at such time, if a Mortgage Loan is a refinance of an existing loan or (ii) the lower of the sales price of the related property at the time of origination of a Mortgage Loan or the appraised value of such property at such time, if a Mortgage Loan is a purchase money loan.

     e. Clause (b) of the definition of “Eligible Mortgage Loan” is hereby deleted in its entirety and replaced with the following:

     that is a Conforming Loan, a Jumbo Loan, a Subprime Loan, a Second-Lien Loan or an Alt-A Loan;

     f. The following definition is hereby inserted after the definition of “FHA Loan”:

     “FICO Score” means, with respect to the Obligor under a particular Mortgage Loan, a credit rating established by Fair Isaac Corporation.

     g. The following definition is hereby inserted after the definition of “FICO Score”:

     “FICO Score Trigger Event” means that (i) the Pool Weighted FICO Score Average has been reported, in a Servicer Monthly Report, as less than 710, (ii) a period of seven Business Days has elapsed from the date of receipt of such report by the Administrative Agent and (iii) the Servicer has not provided to the Administrative Agent a revised Pool Weighted FICO Score Average that exceeds 710.

     h. The definition of “Issuer Facility Amount” is hereby deleted in its entirety and replaced with the following:

     “Issuer Facility Amount” means (a) with respect to Atlantic and La Fayette, on an aggregate basis, $400,000,000 and (b) with respect to Falcon, on an aggregate basis, $100,000,000. Any reduction (or termination) of the Maximum Facility Amount pursuant to the terms of this Agreement shall reduce ratably (or terminate) the Issuer Facility Amount of each Issuer.

     i. The following definition is hereby inserted after the definition of “Jumbo Loan”:

     “La Fayette” means La Fayette Asset Securitization LLC, a Delaware limited liability company.

     j. The definition of “Maximum Facility Amount” is hereby deleted in its entirety and replaced with the following:

     “Maximum Facility Amount” means $500,000,000.00, as such amount may be reduced pursuant to Section 2.1(c) of the Loan Agreement.”

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     k. The definition of “Non-conforming Loan” is hereby deleted in its entirety and replaced with the following:

     “Non-Conforming Loan” means a Subprime Loan, a Jumbo Loan or an Alt-A Loan.

     l. The following definition is hereby inserted after the definition of “Person”:

     “Pool Weighted FICO Score Average” means, as of any Collateral Reporting date, the ratio of (a) the sum, for all Alt-A Loans, of the product for each Alt-A Loan of (i) its FICO Score and (ii) its original principal balance to (b) the sum of the original principal balances of all Alt-A Loans.

     m. The following definition is hereby inserted after the definition of “S&P”:

     “Second-Lien Loan” means a Mortgage Loan secured by particular property with respect to which at least one other higher-priority Mortgage Loan exists secured by the same property.

     n. The following definition is hereby inserted after the definition of “Subordination Agreement”:

     “Subprime Loan” means a Mortgage Loan (other than a Conforming Loan, a Jumbo Loan, or Alt-A Loan) that (1) is underwritten by an Approved Investor, (2) matches all applicable requirements for purchase under the requirements of a Take-Out Commitment specifically issued for the purchase of such Mortgage Loan, and (3) differs from a Conforming Loan because of the credit quality of the Obligor, and is originated by the Originator or by a correspondent of the Originator using the established underwriting guidelines for subprime loans of the Originator, which are the same underwriting guidelines that the Originator uses to originate subprime loans for sales into the secondary mortgage market.

     o. Section 3.7(b) is hereby amended by replacing the words “Within nine (9) Business Days after the date that each Assignment is delivered (and inclusion of the related Special Mortgage Loans within the computation of Collateral Value as reported on the Collateral Agent Daily Report) to the Collateral Agent” with the words “Within nine (9) Business Days after the date of origination of each Special Mortgage Loan”.

     p. Exhibit D-4 is hereby deleted in its entirety and replaced with Exhibit D-4, Form of Assignment, attached hereto.

     q. Schedule I of Exhibit D-4 is hereby deleted in its entirety and replaced with Schedule I to Form of Assignment attached hereto.

     r. Schedule III of Exhibit D-4 is hereby deleted in its entirety and replaced with Schedule III to Form of Assignment attached hereto.

9

     s. Schedule I of Exhibit D-5 is hereby deleted in its entirety and replaced with Schedule I to Form of Transfer Request attached hereto.

     t. Exhibit D-8 is hereby deleted in its entirety and replaced with Exhibit D-8, Collateral Agent Daily Report, attached hereto.

     u. Exhibit D-9 is hereby deleted in its entirety and replaced with Exhibit D-9, Form of Borrowing Report, attached hereto.

     v. Schedule I of Exhibit D-9 is hereby deleted in its entirety and replaced with Schedule I to Form of Borrowing Report attached hereto.

     w. Exhibit D-11 is hereby deleted in its entirety and replaced with Exhibit D-11, Form of Substitution Request, attached hereto.

     x. Schedule I of Exhibit D-11 is hereby deleted in its entirety and replaced with Schedule I to Form of Assignment attached hereto.

     y. Schedule III of Exhibit D-11 is hereby deleted in its entirety and replaced with Schedule III to Form of Assignment attached hereto.

Section 3. Amendment to Restated Loan Agreement.

     a. The definition of “Advance Rate” is hereby deleted in its entirety and replaced with the following:

     “Advance Rate” means (i) with respect to a Conforming Loan or a Jumbo Loan, ninety-eight percent (98%), (ii) with respect to an Alt-A Loan, ninety-seven percent (97%), or, if a FICO Score Trigger Event has occurred and is continuing, as reported to the Collateral Agent by the Administrative Agent, then zero, (iii) with respect to a Second-Lien Loan or a Super Jumbo Loan, ninety-five percent (95%) and (iv) with respect to a Subprime Loan, ninety percent (90%).

     b. The definition of “Annual Extension Date” is hereby deleted in its entirety and replaced with the following:

     “Annual Extension Date” shall mean (i) June 28, 2006, and (ii) thereafter, if consented to by the Lenders, the Managing Agents and the Administrative Agent pursuant to Section 2.1(b), the date that is specified by the Lenders, the Managing Agents and the Administrative Agent in the applicable consent, which date shall not be more than 364 days following the then effective Annual Extension Date; provided, however, that any extension of the Annual Extension Date shall not extend beyond the Facility Termination Date.

     c. The definition of “Collateral Value” is hereby amended as follows:

          i. clause (b) is hereby deleted in its entirety and replaced with the following:

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     at any time, the portion of total Collateral Value that may be attributable to Super Jumbo Loans shall not exceed ten percent (10%) of the Maximum Facility Amount, which percentage represents 50% of the 20% set forth in clause (a) above;

          ii. clause (c) is hereby deleted in its entirety and replaced with the following:

     at any time, the portion of total Collateral Value that may be attributable to Alt-A Loans shall not exceed forty-five percent (45%) of the Maximum Facility Amount; provided that (i) no Obligor on any Alt-A Loan shall have a FICO Score of less than 660, and (ii) each of the Alt-A Loans shall have a Loan-to-Value Ratio of no more than 95% and a Combined Loan-to-Value Ratio of no more than 100%;

          iii. clause (d) is inserted as follows:

     at any time, the portion of total Collateral Value that may be attributable to Subprime Loans shall not exceed five (5%) of the Maximum Facility Amount; provided that (i) no Obligor on any Subprime Loan shall have a FICO Score of less than 600, and (ii) each of the Subprime Loans shall have a Loan-to-Value Ratio of no more than 90%;

          iv. clause (g) is hereby deleted in its entirety and replaced with the following:

     at any time, (i) the portion of total Collateral Value that may be attributable to Mortgage Loans that have been Eligible Mortgage Loans owned by the Borrower for more than 120 days shall not exceed ten percent (10%) of the Maximum Facility Amount (except for Subprime Loans, which, if owned by the Borrower for more than 120 days, shall be zero) and (ii) the portion of total Collateral Value that may be attributable to Mortgage Loans that have been Eligible Mortgage Loans owned by the Borrower for more than 180 days shall be zero (except for Subprime Loans which, if owned by the Borrower for more than 120 days, shall be zero);

          v. in clause (i), replace both occurrences of the words “within nine (9) Business Days after the date the Assignment was delivered to the Collateral Agent” therein, with the words “within nine (9) Business Days after the date of origination of the Special Mortgage Loan”; and

          vi. “; and” is hereby inserted at the end of clause (j), and new clause (k) is inserted as follows:

     at any time, the portion of total Collateral Value that may be attributable to Second-Lien Loans shall not exceed five percent (5%) of the Maximum Facility Amount, of which no more than two percent (2%), which percentage represents 40% of the 5% set forth in the preceding clause, may remain uncovered by a Take-Out Commitment, and any such

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uncovered Second-Lien Loan shall (i) not remain uncovered for longer than 14 calendar days and (ii) carry an adjustable interest rate; provided that (A) no Obligor on any Second-Lien Loan shall have a FICO Score of less than 680 and (B) each of the Second-Lien Loans shall have a Combined Loan-to-Value Ratio of no more than 100%.

     d. The following definition is inserted after the definition of “Collections”:

     “Combined Loan-to-Value Ratio” means, with respect to any Mortgage Loan, the fraction, expressed as a percentage found by dividing the original principal balance of all Mortgage Loans secured by a particular property by the value of such Mortgage Loans, such value being measured by (i) the appraised value of such property at such time, if a Mortgage Loan is a refinance of an existing loan or (ii) the lower of the sales price of the related property at the time of origination of a Mortgage Loan or the appraised value of such property at such time, if a Mortgage Loan is a purchase money loan.

     e. The definition of “Commercial Paper Rate” is hereby deleted in its entirety and replaced with the following:

     “Commercial Paper Rate” for any Interest Period for the related Advance means:

     (a) with respect to the portion of such Advance funded by Atlantic or La Fayette, a rate per annum equal to the sum of:

     (i) the rate or, if more than one rate, the weighted average of the rates, determined by converting to an interest-bearing equivalent rate per annum the discount rate (or rates) at which Commercial Paper Notes having a term equal to such Interest Period and to be issued to fund or to maintain such Advance by the applicable Issuer (including, without limitation, Principal Debt and accrued and unpaid interest), may be sold by any placement agent or commercial paper dealer selected by the Managing Agent for the applicable Issuer, as agreed between each such agent or dealer and the Managing Agent for the applicable Issuer, plus

     (ii) the commissions and charges charged by such placement agent or commercial paper dealer with respect to such Commercial Paper Notes expressed as a percentage of such face amount and converted to an interest-bearing equivalent rate per annum, provided the commissions and charges by the agent or dealer must in the good faith judgment of the Managing Agent for the applicable Issuer be within market range, plus

     (iii) the Conduit Spread; or

     (b) with respect to the portion of any Advance funded by Falcon for any Interest Period, a rate per annum equal to the sum of;

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     (i) the rate (or, if more than one rate, the weighted average of the rates) determined by converting to an interest-bearing equivalent per annum the discount rate (or rate) at which Commercial Paper Notes having a term equal to such Interest Period (or portion thereof) and to be issued to fund or to maintain such Advance by Falcon may be sold by any placement agent or commercial paper dealer selected by Falcon, as agreed between each such agent or dealer and Falcon, plus

     (ii) accrued commissions in respect of placement agents and commercial paper dealers and issuing and paying agent fees incurred, in respect of such Commercial Paper Notes, provided the commissions and charges by the agent or dealer must in the good faith judgment of the Managing Agent for Falcon be within market range, minus

     (iii) any payment received on such date, net of expenses in respect of Consequential Losses related to the prepayment of any purchased interest of Falcon, pursuant to the terms of any receivable purchase facilities funded substantially with such Commercial Paper Notes, plus

     (iv) the Conduit Spread; or

     (c) such other rate as the applicable Issuer and the Borrower shall agree to in writing.

     f. Clause (b) of the definition of “Eligible Mortgage Loan” is hereby deleted in its entirety and replaced with the following:

     that is a Conforming Loan, a Jumbo Loan, a Subprime Loan, a Second-Lien Loan or an Alt-A Loan;

     g. The following definition is hereby inserted after the definition of “FHA Loan”:

     “FICO Score” means, with respect to the Obligor under a particular Mortgage Loan, a credit rating established by Fair Isaac Corporation.

     h. The following definition is hereby inserted after the definition of “FICO Score”:

     “FICO Score Trigger Event” means that (i) the Pool Weighted FICO Score Average has been reported, in a Servicer Monthly Report, as less than 710, (ii) a period of seven Business Days has elapsed from the date of receipt of such report by the Administrative Agent and (iii) the Servicer has not provided to the Administrative Agent a revised Pool Weighted FICO Score Average that exceeds 710.

     i. The definition of “Issuer Facility Amount” is hereby deleted in its entirety and replaced with the following:

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     “Issuer Facility Amount” means (a) with respect to Atlantic and La Fayette, on an aggregate basis, $400,000,000 and (b) with respect to Falcon, on an aggregate basis, $100,000,000. Any reduction (or termination) of the Maximum Facility Amount pursuant to the terms of this Agreement shall reduce ratably (or terminate) the Issuer Facility Amount of each Issuer.

     j. The following definition is hereby inserted after the definition of “Jumbo Loan”:

     “La Fayette” means La Fayette Asset Securitization LLC, a Delaware limited liability company.

     k. The definition of “Managing Agent” is hereby deleted in its entirety and replaced with the following:

     “Managing Agent” means, with respect to Atlantic or La Fayette, Calyon or any successor managing agent designated by such party.

     l. The definition of “Maximum Facility Amount” is hereby deleted in its entirety and replaced with the following:

     “Maximum Facility Amount” means $500,000,000.00, as such amount may be reduced pursuant to Section 2.1(c) of the Loan Agreement.”

     m. The definition of “Non-conforming Loan” is hereby deleted in its entirety and replaced with the following:

     “Non-Conforming Loan” means a Subprime Loan, a Jumbo Loan or an Alt-A Loan.

     n. The following definition is hereby inserted after the definition of “Person”:

     “Pool Weighted FICO Score Average” means, as of any Collateral Reporting date, the ratio of (a) the sum, for all Alt-A Loans, of the product for each Alt-A Loan of (i) its FICO Score and (ii) its original principal balance to (b) the sum of the original principal balances of all Alt-A Loans.

     o. The following definition is hereby inserted after the definition of “S&P”:

     “Second-Lien Loan” means a Mortgage Loan secured by particular property with respect to which at least one other higher-priority Mortgage Loan exists secured by the same property.

     p. The following definition is hereby inserted after the definition of “Subordination Agreement”:

     “Subprime Loan” means a Mortgage Loan (other than a Conforming Loan, a Jumbo Loan, or Alt-A Loan) that (1) is underwritten by an Approved Investor, (2) matches all applicable requirements for purchase under the

14

requirements of a Take-Out Commitment specifically issued for the purchase of such Mortgage Loan, and (3) differs from a Conforming Loan because of the credit quality of the Obligor, and is originated by the Originator or by a correspondent of the Originator using the established underwriting guidelines for subprime loans of the Originator, which are the same underwriting guidelines that the Originator uses to originate subprime loans for sales into the secondary mortgage market.

     q. Section 2.1(a) is hereby deleted in its entirety and replaced with the following:

     Subject to the terms of this Agreement and so long as (i) the total Principal Debt never exceeds the Maximum Facility Amount, (ii) the Primary Obligations never exceed the total Collateral Value of all Eligible Mortgage Collateral, (iii) no Borrowing ever exceeds the Availability, and (iv) Borrowings are only made on Business Days before the Drawdown Termination Date, either or both Issuers may, in its or their sole discretion, make an Advance, and to the extent the Issuers do not make such Advance, its Group Banks shall, ratably in accordance with their Bank Commitments, make Advances to the Borrower from time to time in such amounts as may be requested by the Borrower pursuant to Section 2.3, so long as each Borrowing is the least of (x) the Availability, (y) the Available Collateral Value, and (z) $5,000,000 or integral multiples of $10,000 in excess thereof. Within the limits of the Maximum Facility Amount, the Borrower may borrow, prepay (whether pursuant to Section 2.5 or Section 3.3(a) of this Agreement or otherwise), and reborrow under this Section 2.1.

     r. Section 2.3(a)(i) is hereby deleted in its entirety and replaced with the following:

     The Borrower shall give the Administrative Agent, each Managing Agent and the Collateral Agent notice of each request for a Borrowing, pursuant to a Borrowing Report, and in accordance with the provisions of Section 4.2 hereof. On the Borrowing Date specified in the Borrowing Report and subject to all other terms and conditions of this Agreement, either or both Issuers may, in its or their discretion, make available to its Managing Agent at the office of its Managing Agent set forth in Section 14.1, in immediately available funds, its share of the Borrowing (such amount not to exceed to amount requested by the Borrower or agreed to by the Issuer).

     s. Section 2.3(a)(ii) is hereby deleted in its entirety and replaced with the following:

     To the extent that either or both Issuers shall elect not to make a Borrowing requested by the Borrower, each related Group Bank agrees that it shall, on the Borrowing Date specified in the Borrowing Report and subject to all other terms and conditions of this Agreement, make available to its Managing Agent at the office of the Administrative Agent set forth in Section 14.1, in immediately available funds, an amount equal to the product of (x) such Bank’s

15

Bank Commitment Percentage, multiplied by (y) the portion of such Borrowing that such Issuer or Issuers has elected not to fund.

     t. Section 2.3(c)(iii) is hereby amended by replacing the words “Within nine (9) Business Days after the date that each Assignment is delivered (and inclusion of the related Special Mortgage Loan within the computation of Collateral Value as reported on the Collateral Agent Daily Report), to Collateral Agent” with the words “Within nine (9) Business Days after the date of origination of the applicable Special Mortgage Loan”.

     u. Section 2.3(c)(iv) is hereby amended by replacing both occurrences of the words “within nine (9) Business Days after the date the Assignment was delivered to the Collateral Agent” therein, with the words “within nine (9) Business Days after the date of origination of the applicable Special Mortgage Loan”.

     v. Section 3.7 is hereby deleted in its entirety and replaced with the following:

     No later than 10:00 a.m. (eastern time) on the 15th day of each month (or, if such day is not a Business Day, the next Business Day) and within twenty (20) days after request by the Administrative Agent, the Servicer shall furnish the Borrower and the Administrative Agent and the Managing Agents (by facsimile or electronic transmission (a hard copy of which shall not subsequently be mailed, sent or delivered to the Administrative Agent and the Managing Agents, unless so requested by the Administrative Agent and the Managing Agents)) a report executed by a Financial Officer of the Servicer or the Originator, in the form of Exhibit F hereto (“Servicer Monthly Report”) which shall provide as of the last day of the previous month (or of the date of such request) (i) a computation of the Pool Weighted FICO Score Average, Default Ratio and Sixty-Day Default Ratio, (ii) delinquency of Mortgage Loans owned by the Borrower that are financed by the Lenders and constitute Collateral hereunder, and (iii) the other information provided for therein. If such Servicer Monthly Report reflects a Pool Weighted FICO Score Average below 710 then, to the extent that a FICO Score Trigger Event results therefrom, the Administrative Agent shall so notify the Collateral Agent.

     w. Section 8.1(aa) is hereby deleted in its entirety and replaced with the following:

     the Originator’s Net Worth shall be less than $70,000,000; or

     x. Section 14.1 is hereby amended by adding the following Issuer information:

LA FAYETTE ASSET SECURITIZATION LLC
c/o Calyon New York Branch
1301 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 459-3258
Attention: Conduit Securitization

16

With a copy to the Administrative Agent (except in the case of notice from the Administrative Agent).

     y. Schedule I is hereby deleted in its entirety and replaced with Schedule I, Bank Commitments and Percentages, attached hereto.

     z. Exhibit C is hereby deleted in its entirety and replaced with Exhibit C, Form of Borrowing Report, attached hereto.

     aa. Exhibit F is hereby deleted in its entirety and replaced with Exhibit F, Form of Servicer Monthly Report, attached hereto.

     bb. Schedule I of Exhibit C is hereby deleted in its entirety and replaced with Schedule I attached hereto and immediately following Exhibit C of the Restated Loan Agreement.

Section 4. Operative Documents in Full Force and Effect as Amended.

     Except as specifically amended hereby, all of the provisions of the Operative Documents and all of the provisions of all other documentation required to be delivered with respect thereto shall remain in full force and effect from and after the date hereof.

Section 5. Miscellaneous.

     a. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall not constitute a novation of any Operative Document, but shall constitute an amendment thereof. The parties hereto agree to be bound by the terms and conditions of each Operative Document, as amended by this Amendment, as though such terms and conditions were set forth herein

     b. The descriptive headings of the various sections of this Amendment are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

     c. This Amendment may not be amended or otherwise modified except as provided in each respective Operative Agreement.

     d. This Amendment and the rights and obligations of the parties under this amendment shall be governed by, and construed in accordance with, the laws of the state of New York (without giving effect to the conflict of laws principles thereof, other than Section 5-1401 of the New York General Obligations Law, which shall apply hereto).

{Signatures appear on the following pages.}

17

          IN WITNESS WHEREOF, the parties have agreed to and caused this Amendment to be executed by their respective officers thereunto duly authorized, as of the date first above written.

BORROWER:	CH FUNDING, LLC
	By:	/s/ Mark C. Winter
	Name: Mark C. Winter
	Title: Vice President
ADMINISTRATIVE AGENT, BANK, AND MANAGING AGENT:	CALYON NEW YORK BRANCH, successor in interest to Credit Lyonnais New York Branch
	By:	/s/ Kostantina Kourmpetis
	Name: Kostantina Kourmpetis
	Title: Managing Director
	By:	/s/ Anthony Brown
	Name: Anthony Brown
	Title: Vice President
ISSUER:	ATLANTIC ASSET SECURITIZATION CORP.
	By: Calyon New York Branch, as Attorney in Fact
	By:	/s/ Kostantina Kourmpetis
	Name: Kostantina Kourmpetis
	Title: Managing Director
	By:	/s/ Anthony Brown
	Name: Anthony Brown
	Title: Vice President

{Signatures continue on the following page.}

18

ISSUER:	LA FAYETTE ASSET SECURITIZATION LLC
	By:	La Fayette Member, Inc., its sole member
	By:	/s/ Kostantina Kourmpetis
	Name: Kostantina Kourmpetis
	Title: Managing Director
	By: /s	/Anthony Brown
	Name: Anthony Brown Title: Vice President
SELLER AND SERVICER:	DHI MORTGAGE COMPANY, LTD.
	By:	DHI Mortgage Company GP, Inc., formerly known as CH Mortgage Company GP, Inc., its general partner
	By:	/s/ Mark C. Winter
	Name: Mark C. Winter Title: Executive Vice President & Chief Financial Officer
COLLATERAL AGENT:	U.S. BANK NATIONAL ASSOCIATION
	By:	/s/ Kathleen M. Connor
	Name: Kathleen M. Connor Title: Vice President
BANK AND MANAGING AGENT:	JPMORGAN CHASE BANK, N.A., successor in interest to Bank One, NA (Main Office Chicago)
	By:	/s/ Jill T. Lane
	Name: Jill T. Lane Title: Vice President

19

ISSUER:	FALCON ASSET SECURITIZATION CORPORATION
	By:	/s/ Jill T. Lane
	Name: Jill T. Lane
	Title: Authorized Signatory
BANK:	LLOYDS TSB BANK PLC,
	By:	/s/ Kathy Simmons
	Name: Kathy Simmons
	Title: Director Structured Finance S034
	By:	/s/ Amy Vespasiano
	Name: Amy Vespasiano
	Title: Director Structured Finance V024

20

SCHEDULE I

BANK COMMITMENTS AND PERCENTAGES

			Bank
	Bank		Commitment			Group Bank
Bank	Commitment		Percentage			Percentage
CALYON NEW YORK BRANCH
LLOYDS TSB BANK PLC
JPMORGAN CHASE BANK
TOTAL	$	500,000,000		100	%		100	%

EXHIBIT D-4

FORM OF ASSIGNMENT

     Date: ___, ___

To:	U.S. BANK NATIONAL ASSOCIATION
	800 Nicollet
	Mail Code BC-MN-H03B
	Minneapolis, MN 55402
	Telephone: (612) 303-3581
	Facsimile: (612) 303-2253

Re: (i) Loan Agreement entered into as of July 9, 2002 among CH FUNDING, LLC (the “Borrower”), the Issuer and Banks parties thereto, CALYON NEW YORK BRANCH, in its capacity as administrative agent for the “Lenders” (as defined therein) (in such capacity, the “Administrative Agent”), and DHI MORTGAGE COMPANY, LTD., in its capacity as servicer thereunder (as the same may be increased, reduced, supplemented, amended, restated, renewed, extended or otherwise modified from time to time, the “Loan Agreement”) and (ii) Collateral Agency Agreement dated as of July 9, 2002 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Collateral Agency Agreement”) among the Borrower, the Administrative Agent, and U.S. BANK NATIONAL ASSOCIATION, in its capacity as the collateral agent (the “Collateral Agent”). Capitalized terms used herein, and not otherwise defined herein, shall have the meanings assigned to such terms in the Loan Agreement or Collateral Agency Agreement, as applicable.

     For value received and pursuant to the Loan Agreement and the Collateral Agency Agreement, as Collateral for the Obligations, the undersigned Borrower hereby transfers, assigns, pledges and sets over to the Administrative Agent, for the benefit of the holders of the Obligations, and hereby grants to the Administrative Agent, for the benefit of the holders of the Obligations, a security interest in (1) each Mortgage Loan described on Schedule II attached hereto and made a part hereof (the Principal Mortgage Documents of which are being delivered to the Collateral Agent herewith) and (2) each Mortgage Loan described on Schedule III attached hereto and made a part hereof (the Principal Mortgage Documents of which are to be delivered herewith to the Collateral Agent within nine (9) Business Days from the date of origination of the Special Mortgage Loan). It is understood that all deliveries hereunder shall be to the Collateral Agent (as agent and bailee for the Administrative Agent) or the Administrative Agent (for the benefit of holders of the Obligations), as the case may be, pursuant to the Collateral Agency Agreement.

     The Borrower represents and warrants to the Administrative Agent and the Collateral Agent, in each case, for the benefit of the holders of the Obligations that the Borrower currently holds, in trust for the Administrative Agent for the benefit of the holders of the Obligations, all of the Other Mortgage Documents, as required by Section 3.2(c) of the Loan Agreement, for each Mortgage Loan described in Schedule II. Further, the Borrower represents and warrants that all information provided with this Assignment, including the information contained on

Schedule II, and III, is true and correct and that all of the Principal Mortgage Documents for each of the Mortgage Loans described in Schedule II accompany this Assignment and are delivered to the Collateral Agent for the benefit of the holders of the Obligations free and clear of any liens other than that of the Administrative Agent upon the application of any related Advance to pay off any prior lienholder as required by the Loan Agreement and under the Collateral Agency Agreement. The Borrower also represents and warrants that unless otherwise noted on Schedule I and III to this Assignment, the date of origination of each Special Mortgage Loan assigned by this Assignment is the date of this Assignment.

This Assignment shall be binding upon, and inure to the benefit of, the successors and assigns of the Borrower, the Collateral Agent and the Administrative Agent for the benefit of the holders of the Obligations. Capitalized terms used in this Assignment and not otherwise defined herein have the meanings given thereto in the Loan Agreement.

THIS ASSIGNMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW WHICH SHALL APPLY HERETO).

THIS ASSIGNMENT AND THE OTHER TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

In witness whereof, the Borrower has caused this Assignment to be executed and delivered on the first date above written.

CH FUNDING, LLC
By:
	Name:
	Title:

SCHEDULE I TO FORM OF ASSIGNMENT

I.	Change in Borrowings Requested
			Current		Prior Unmatured Borrowings in Place
	(1) Amt of Borrowings (maturing)		—		—			—
	(2) New Borrowing requested		—		—			—
	(3) Borrowing or Substitution Date
	(4) Int. Period Maturity/Term (days)
							Jumbo
								Super	Second-
			Total	Conforming	Alt A	Sub Prime	All	Only	Lien Loans
	(5) Maximum Facility Amount/Sublimits
II.	Prior to Request
	(10) Collateral Value (mtgs) per CA report		—	—	—	—	—	—
	(11) Special Mtg Loans (wet)		—	> Nine (9) Business Days from origination.
	(12) Non Spec Mtg Loans (dry)		—
	(13) Collateral Value (Cash Collection)		—
	(14) Total Collateral Value		—	—	Collateral in pool for over 120 days
	(15) Total Borrowings/Principal Debt		—
	(16) Special Borrowings	0%	—
	(17) Non Special Borrowings	0%	—
	(18) Primary Obligations — Total		—
III.	Substitutions or Change in Borrowings only (Assignments to be attached)
	(20) Unpaid Mortgage Loan Balance *		—
	(21) Take Out Commitments *		—
	(22) Lesser of (20) or (21)		—
	(23) Advance Rate			98%	97%	90%	98%	95%		95	%
	(24) Collateral Value *		—	—	—	—	—	—
	(25) Special Mtg Loans (wet) *
	(26) Non Spec Mtg Loans (dry) *
	(27) Collateral Value Cash — Collection *			_ Amt of Cash Collateral to be (swept) by Collateral Agent
	(28) Collateral Value Change *		—
	(29) Net Borrowings/Principal Debt *		—
	(30) Special Borrowings *	0%	—
	(31) Non Special Borrowings *	0%	—
	(32) Primary Obligations *
	* — Denotes net change of new assets less previous assets being substituted/removed/matured.

IV.	Portfolio After Request
	(40) Collateral Value (mortgages)		—	—	—	—	—	—
	(41) Special Mtg Loans (wet)		—
	(42) Non Spec Mtg Loans (dry)		—
	(43) Collateral Value Cash — Collection		—
	(44) Total Collateral Value		—
	(45) Total Borrowings/Principal Debt		—
	(46) Special Borrowings	0%	—	< 50% if last five or 1st five bus. days of mo., < 30% otherwise
	(47) Non Special Borrowings	0%	—
	(48) Primary Obligations — Total		—
	(49) Overcollateralized (44) — (48)		—	_ Must be > $0 for Collateral Agent to sweep/substitute.

V.	Sublimit Tests							Jumbo
								Super	Second-
	Test	Spec. Borr. 30%	Spec Borr 50%	120 Day	Alt A	Sub Prime	All	Only	Lien Loans
	Results	OK	OK	OK	OK	OK	OK	OK	OK

	(44) Total Collateral Value	—
VI.	Special Mortgages Loans with Date of Origination Different from Date of Assignment:

SCHEDULE III TO FORM OF ASSIGNMENT

Mortgage Loans in which the Administrative Agent
is Granted a Security Interest for the Benefit of
the Holders of the Obligations and with Respect to which the
Principal Mortgage Documents are to be Delivered within nine (9) Business Days from the date of
origination. Unless otherwise noted on this Schedule and Schedule I, the date of origination of
each Special Mortgage Loan assigned by this Assignment is the date of this Assignment.

	Original						Take-Out
Originator’s	Principal	Collateral			Loan	Take-Out	Commitment
Loan Number	Amount	Value	Obligor	Interest Rate	Type	Commitment	Price

SCHEDULE I TO FORM OF ASSIGNMENT REQUEST

I.	Change in Borrowings Requested
			Current		Prior Unmatured Borrowings in Place
	(1) Amt of Borrowings (maturing)		—		—			—
	(2) New Borrowing requested		—		—			—
	(3) Borrowing or Substitution Date
	(4) Int. Period Maturity/Term (days)
							Jumbo
								Super	Second-
			Total	Conforming	Alt A	Sub Prime	All	Only	Lien Loans
	(5) Maximum Facility Amount/Sublimits
II.	Prior to Request
	(10) Collateral Value (mtgs) per CA report		—	—	—	—	—	—
	(11) Special Mtg Loans (wet)		—	> Nine (9) Business Days from origination.
	(12) Non Spec Mtg Loans (dry)		—
	(13) Collateral Value (Cash Collection)		—
	(14) Total Collateral Value		—	—	Collateral in pool for over 120 days
	(15) Total Borrowings/Principal Debt		—
	(16) Special Borrowings	0%	—
	(17) Non Special Borrowings	0%	—
	(18) Primary Obligations - Total		—
III.	Substitutions or Change in Borrowings only(Assignments to be attached)
	(20) Unpaid Mortgage Loan Balance *		—
	(21) Take Out Commitments *		—
	(22) Lesser of (20) or (21)		—
	(23) Advance Rate			98%	97%	90%	98%	95%		95	%
	(24) Collateral Value *		—	—	—	—	—	—
	(25) Special Mtg Loans (wet) *
	(26) Non Spec Mtg Loans (dry) *
	(27) Collateral Value Cash — Collection *			_ Amt of Cash Collateral to be (swept) by Collateral Agent
	(28) Collateral Value Change *		—
	(29) Net Borrowings/Principal Debt *		—
	(30) Special Borrowings *	0%	—
	(31) Non Special Borrowings *	0%	—
	(32) Primary Obligations *
	* — Denotes net change of new assets less previous assets being substituted/removed/matured.

IV.	Portfolio After Request
	(40) Collateral Value (mortgages)		—	—	—	—	—	—
	(41) Special Mtg Loans (wet)		—
	(42) Non Spec Mtg Loans (dry)		—
	(43) Collateral Value Cash - Collection		—
	(44) Total Collateral Value		—
	(45) Total Borrowings/Principal Debt		—
	(46) Special Borrowings	0%	—	< 50% if last five or 1st five bus. days of mo., < 30% otherwise
	(47) Non Special Borrowings	0%	—
	(48) Primary Obligations - Total		—
	(49) Overcollateralized (44) — (48)		—	_ Must be > $0 for Collateral Agent to sweep/substitute.

V.	Sublimit Tests							Jumbo
								Super	Second-
	Test	Spec. Borr. 30%	Spec Borr 50%	120 Day	Alt A	Sub Prime	All	Only	Lien Loans
	Results	OK	OK	OK	OK	OK	OK	OK	OK

VI. Special Mortgages Loans with Date of Origination Different from Date of Assignment:

EXHIBIT D-8

COLLATERAL AGENT DAILY REPORT

Calyon New York Branch
Facsimile No.: (212) 459-3258
Attention: Structured Finance

Re:	CH FUNDING, LLC
Date:

We refer to the Collateral Agency Agreement dated as of July 9, 2002, by and among CH Funding, LLC, Calyon New York Branch, in its capacity as administrative agent (the “Administrative Agent”) for the “Lenders” (under and as defined in that certain Loan Agreement referred to therein), and U.S. BANK NATIONAL ASSOCIATION, in its capacity as collateral agent (the “Collateral Agent”) (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Collateral Agency Agreement”). Capitalized terms used herein, and not otherwise defined herein, shall have the meanings assigned to such terms in the Collateral Agency Agreement.

Pursuant to Section 3.5 of the Loan Agreement and Section 3.8(a) of the Collateral Agency Agreement, the Collateral Agent hereby confirms that as of ___, ___:

     1. The Collateral Value of all Eligible Mortgage Collateral is $___, as more fully set forth on Schedule I.

     2. The Collateral Value of all Special Mortgage Loans (excluding the Special Mortgage Loans for which the Principal Mortgage Documents have not been delivered to the Collateral Agent and which Special Mortgage Loans have been included in the Collateral Value for more than nine (9) Business Days after the date of origination of the applicable Special Mortgage Loan) is $___.

     3. The Collateral Value of all Mortgage Loans that have been included in Eligible Mortgage Loans for more than 120 days and less than 180 days is $___.

     4. The portion of total Collateral Value attributable (A) to Jumbo Loans does not exceed twenty percent (20%) of the Maximum Facility Amount, (B) to Super Jumbo Loans does not exceed ten percent (10%) of the Maximum Facility Amount, which amount represents 50% of the amount set forth in the preceding subclause (A), (C) to Alt-A Loans does not exceed forty-five percent (45%) of the Maximum Facility Amount, (D) to Subprime Loans does not exceed five (5%) of the Maximum Facility Amount, (E) to Second-Lien Loans does not exceed five percent (5%) of the Maximum Facility Amount, of which no more than two percent (2%) is uncovered by a Take-Out Commitment, which two percent (2%) represents 40% of the 5% set forth in the preceding subclause,

     (F) to Special Mortgage Loans that within nine (9) Business Days after the date of origination of the related Special Mortgage Loan, except the first five and last five Business Days of any month, does not exceed thirty percent (30%) of the Maximum Facility Amount, and (G) to Special Mortgage Loans that within nine (9) Business Days after the date of origination of the related Special Mortgage Loan during the first five and last five Business Days of any month does not exceed fifty percent (50%) of the Maximum Facility Amount.

Very truly yours,
U.S. BANK NATIONAL ASSOCIATION,
as Collateral Agent
By:
	Name:
	Title:

EXHIBIT D-9

FORM OF BORROWING REPORT

TO: CALYON NEW YORK BRANCH as Administrative Agent under the Loan Agreement referred to below

Attn: Florence Reyes

U.S. BANK NATIONAL ASSOCIATION, as the Collateral Agent for the Lenders under the Loan Agreement referred to below

1.	CH FUNDING, LLC hereby requests the following Borrowing or Collateral Substitution (the “Requested Borrowing”) in the amount and on the Borrowing Date herein specified, pursuant to the Loan Agreement (the “Loan Agreement”) dated as of July 9, 2002 among CH FUNDING, LLC, a Delaware limited liability company (hereinafter, together with its successors and assigns, the “Borrower”), ATLANTIC ASSET SECURITIZATION CORP., a Delaware corporation (hereinafter, together with its successors and assigns, “Atlantic”), CALYON NEW YORK BRANCH (“Calyon”), as a Bank and the Administrative Agent, and DHI MORTGAGE COMPANY, LTD., a Texas limited partnership (hereinafter, together with its successors and assigns, “DHI Mortgage”), as Servicer, as modified or amended from time to time. Capitalized terms used and not otherwise defined herein have the meanings given thereto in the Loan Agreement.
2.	Type of Request:
	o Borrowing, as described in Schedule I.
	o Collateral Substitution, as described in Schedule I.
3.	The undersigned officer of the Borrower hereby represents and certifies, and the undersigned officer of the Servicer hereby confirms, for the benefit of the Lenders and the Agent that after giving effect to the Requested Borrowing/Substitution as described above, and detailed in the attached Schedule I:

(a)	Maximum Facility Amount is	$
(b)	Total Principal Debt is	$
(c)	Availability is	$
(d)	Primary Obligations is	$
(e)	Collateral Value is	$

4. The undersigned officer of the Borrower hereby represents and warrants, and the undersigned officer of the Servicer hereby confirms, for the benefit of the Lenders and the Agent, that:

(a) The Borrower is entitled to receive the Requested Borrowing under the terms and conditions of the Loan Agreement (and pursuant to the Assignment, if any,

	executed in connection herewith, the Borrower grants to the Administrative Agent a security interest in the Collateral described in such Assignment);
(b)	(i) if the Requested Borrowing is not a Special Borrowing, all Principal Mortgage Documents required under Section 3.2(b) of the Loan Agreement and that relate to the Mortgage Loans identified on Schedule II to the Assignment, if any, executed in connection herewith have been delivered to the Collateral Agent, and (ii) if the Requested Borrowing is a Special Borrowing, either (A) all such documents that relate to Schedule II to the Assignment shall be delivered to the Collateral Agent within nine (9) Business Days after the date of origination of the applicable Special Mortgage Loan, as required under Section 2.3(c) of the Loan Agreement, or (B) the Principal Debt that has been borrowed against such Mortgage Loans shall be repaid in full as and to the extent required under Section 2.3(d) of the Loan Agreement;
(c)	all Mortgage Loans, Principal Mortgage Documents and Other Mortgage Documents in which the Administrative Agent is granted a security interest pursuant to the Assignment, if any, in connection herewith, comply in all respects with the applicable requirements set forth in the Loan Agreement and the Security Agreement;
(d)	at all times relevant to this Agreement, total Collateral Value attributable to the types or categories of Collateral referred to in the definition of Collateral Value has not, and does not now, exceed the limitations established in such definition;
(e)	no Default or Event of Default has occurred or is continuing;
(f)	no change or event that constitutes a Material Adverse Effect as to the Borrower has occurred;
(g)	If at any time the total Collateral Value of all Eligible Mortgage Collateral is less than the Primary Obligations, the Borrower either provided additional Eligible Mortgage Collateral with a sufficient Collateral Value or paid Principal Debt in an amount sufficient to correct the deficiency within two Business Days after notice.

5.

The representations and warranties of the Borrower and the Servicer contained in the Loan Agreement and those contained in each other Transaction Document to which the Borrower or the Servicer is a party are true and correct in all material respects on and as of the date hereof. The Borrower also represents and warrants that unless otherwise noted on Schedule I to this Requested Borrowing, the date of origination of each Special Mortgage Loan is the date such Special Mortgage Loan was assigned to the Collateral Agent.

6.

All of the conditions applicable to the Requested Borrowing pursuant to Section 4.2 of the Loan Agreement are and will be satisfied immediately before and after giving effect to the Requested Borrowing.

	CH FUNDING, LLC,
	as the Borrower
Date:	By:
	Name:
	Title:

	DHI MORTGAGE COMPANY, LTD.
	as the Servicer
	By: DHI MORTGAGE COMPANY, GP, INC.,
Date:
	By:
	Name:
	Title:

SCHEDULE I TO FORM OF BORROWING ASSIGNMENT

I.	Change in Borrowings Requested
			Current		Prior Unmatured Borrowings in Place
	(1) Amt of Borrowings (maturing)		—		—			—
	(2) New Borrowing requested		—		—			—
	(3) Borrowing or Substitution Date
	(4) Int. Period Maturity/Term (days)
							Jumbo
								Super	Second-
			Total	Conforming	Alt A	Sub Prime	All	Only	Lien Loans
	(5) Maximum Facility Amount/Sublimits
II.	Prior to Request
	(10) Collateral Value (mtgs) per CA report		—	—	—	—	—	—
	(11) Special Mtg Loans (wet)		—	> Nine (9) Business Days from origination.
	(12) Non Spec Mtg Loans (dry)		—
	(13) Collateral Value (Cash Collection)		—
	(14) Total Collateral Value		—	—	Collateral in pool for over 120 days
	(15) Total Borrowings/Principal Debt		—
	(16) Special Borrowings	0%	—
	(17) Non Special Borrowings	0%	—
	(18) Primary Obligations - Total		—
III.	Substitutions or Change in Borrowings only (Assignments to be attached)
	(20) Unpaid Mortgage Loan Balance *		—
	(21) Take Out Commitments *		—
	(22) Lesser of (20) or (21)		—
	(23) Advance Rate			98%	97%	90%	98%	95%		95	%
	(24) Collateral Value *		—	—	—	—	—	—
	(25) Special Mtg Loans (wet) *
	(26) Non Spec Mtg Loans (dry) *
	(27) Collateral Value Cash — Collection *			_ Amt of Cash Collateral to be (swept) by Collateral Agent
	(28) Collateral Value Change *		—
	(29) Net Borrowings/Principal Debt *		—
	(30) Special Borrowings *	0%	—
	(31) Non Special Borrowings *	0%	—
	(32) Primary Obligations *
	* — Denotes net change of new assets less previous assets being substituted/removed/matured.

IV.	Portfolio After Request
	(40) Collateral Value (mortgages)		—	—	—	—	—	—
	(41) Special Mtg Loans (wet)		—
	(42) Non Spec Mtg Loans (dry)		—
	(43) Collateral Value Cash - Collection		—
	(44) Total Collateral Value		—
	(45) Total Borrowings/Principal Debt		—
	(46) Special Borrowings	0%	—	< 50% if last five or 1st five bus. days of mo., < 30% otherwise
	(47) Non Special Borrowings	0%	—
	(48) Primary Obligations - Total		—
	(49) Overcollateralized (44) — (48)		—	_ Must be > $0 for Collateral Agent to sweep/substitute.

V.	Sublimit Tests							Jumbo
								Super	Second-
	Test	Spec. Borr. 30%	Spec Borr 50%	120 Day	Alt A	Sub Prime	All	Only	Lien Loans
	Results	OK	OK	OK	OK	OK	OK	OK	OK

VI. Special Mortgages Loans with Date of Origination Different from Date of Assignment:

EXHIBIT D-11

FORM OF SUBSTITUTION REQUEST

     Date: ___, ___

To: U.S. BANK NATIONAL ASSOCIATION
800 Nicollet
Mail Code BC-MN-H03B
Minneapolis, MN 55402
Telephone: (612) 303-3581
Facsimile: (612) 303-2253

Re: (i) Loan Agreement entered into as of July 9, 2002 among CH FUNDING, LLC (the “ Borrower”), the Issuer and Banks parties thereto, CALYON NEW YORK BRANCH, in its capacity as administrative agent for the “Lenders” (as defined therein) (in such capacity, the “Administrative Agent”), and DHI MORTGAGE COMPANY, LTD., in its capacity as servicer thereunder (as the same may be increased, reduced, supplemented, amended, restated, renewed, extended or otherwise modified from time to time, the “Loan Agreement”) and (ii) Collateral Agency Agreement dated as of July 9, 2002 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Collateral Agency Agreement”) among the Borrower, the Administrative Agent, and U.S. BANK NATIONAL ASSOCIATION, in its capacity as the collateral agent (the “Collateral Agent”). Capitalized terms used herein, and not otherwise defined herein, shall have the meanings assigned to such terms in the Loan Agreement or Collateral Agency Agreement, as applicable.

     For value received and pursuant to the Loan Agreement and the Collateral Agency Agreement, as Collateral for the Obligations, the undersigned Borrower hereby transfers, assigns, pledges and sets over to the Administrative Agent, for the benefit of the holders of the Obligations, and hereby grants to the Administrative Agent, for the benefit of the holders of the Obligations, a security interest in (1) each Mortgage Loan described on Schedule II attached hereto and made a part hereof (the Principal Mortgage Documents of which are being delivered to the Collateral Agent herewith) and (2) each Mortgage Loan described on Schedule III attached hereto and made a part hereof (the Principal Mortgage Documents of which are to be delivered herewith to the Collateral Agent within nine (9) Business Days from the date of origination of the applicable Special Mortgage Loan). It is understood that all deliveries hereunder shall be to the Collateral Agent (as agent and bailee for the Administrative Agent) or the Administrative Agent (for the benefit of holders of the Obligations), as the case may be, pursuant to the Collateral Agency Agreement.

     You are hereby directed to remove the amount of $___from the Collection Account and wire such amount for deposit to ___.

     The Borrower represents and warrants to the Administrative Agent and the Collateral Agent, in each case, for the benefit of the holders of the Obligations that the Borrower currently holds, in trust for the Administrative Agent for the benefit of the holders of the Obligations, all

of the Other Mortgage Documents, as required by Section 3.2(c) of the Loan Agreement, for each Mortgage Loan described in Schedule II. Further, the Borrower represents and warrants that all information provided with this Substitution Request, including the information contained on Schedule II, and III, is true and correct and that all of the Principal Mortgage Documents for each of the Mortgage Loans described in Schedule II accompany this Substitution Request and are delivered to the Collateral Agent for the benefit of the holders of the Obligations free and clear of any liens other than that of the Administrative Agent upon the application of any related Advance to pay off any prior lienholder as required by the Loan Agreement and under the Collateral Agency Agreement. The Borrower also represents and warrants that unless otherwise noted on Schedule I and III to this Substitution Request, the date of origination of each Special Mortgage Loan is the date such Special Mortgage Loan was assigned to the Collateral Agent.

This Substitution Request shall be binding upon, and inure to the benefit of, the successors and assigns of the Borrower, the Collateral Agent and the Administrative Agent for the benefit of the holders of the Obligations. Capitalized terms used in this Substitution Request and not otherwise defined herein have the meanings given thereto in the Loan Agreement.

THIS SUBSTITUTION REQUEST SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF, OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW WHICH SHALL APPLY HERETO).

THIS SUBSTITUTION REQUEST AND THE OTHER TRANSACTION DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

In witness whereof, the Borrower and the Servicer have caused this Substitution Request to be executed and delivered on the first date above written.

CH FUNDING, LLC
By:
	Name:
	Title:
DHI MORTGAGE COMPANY, LTD.
By:      DHI Mortgage Company GP, Inc.,
its general partner
By:

Name:

Title:

SCHEDULE I TO FORM OF SUBSTITUTION REQUEST

I.	Change in Borrowings Requested
			Current		Prior Unmatured Borrowings in Place
	(1) Amt of Borrowings (maturing)		—		—			—
	(2) New Borrowing requested		—		—			—
	(3) Borrowing or Substitution Date
	(4) Int. Period Maturity/Term (days)
							Jumbo
								Super	Second-
			Total	Conforming	Alt A	Sub Prime	All	Only	Lien Loans
	(5) Maximum Facility Amount/Sublimits
II.	Prior to Request
	(10) Collateral Value (mtgs) per CA report		—	—	—	—	—	—
	(11) Special Mtg Loans (wet)		—	> Nine (9) Business Days from origination.
	(12) Non Spec Mtg Loans (dry)		—
	(13) Collateral Value (Cash Collection)		—
	(14) Total Collateral Value		—	—	Collateral in pool for over 120 days
	(15) Total Borrowings/Principal Debt		—
	(16) Special Borrowings	0%	—
	(17) Non Special Borrowings	0%	—
	(18) Primary Obligations - Total		—
III.	Substitutions or Change in Borrowings only (Assignments to be attached)
	(20) Unpaid Mortgage Loan Balance *		—
	(21) Take Out Commitments *		—
	(22) Lesser of (20) or (21)		—
	(23) Advance Rate			98%	97%	90%	98%	95%		95	%
	(24) Collateral Value *		—	—	—	—	—	—
	(25) Special Mtg Loans (wet) *
	(26) Non Spec Mtg Loans (dry) *
	(27) Collateral Value Cash — Collection *			_ Amt of Cash Collateral to be (swept) by Collateral Agent
	(28) Collateral Value Change *		—
	(29) Net Borrowings/Principal Debt *		—
	(30) Special Borrowings *	0%	—
	(31) Non Special Borrowings *	0%	—
	(32) Primary Obligations *
	* — Denotes net change of new assets less previous assets being substituted/removed/matured.

IV.	Portfolio After Request
	(40) Collateral Value (mortgages)		—	—	—	—	—	—
	(41) Special Mtg Loans (wet)		—
	(42) Non Spec Mtg Loans (dry)		—
	(43) Collateral Value Cash - Collection		—
	(44) Total Collateral Value		—
	(45) Total Borrowings/Principal Debt		—
	(46) Special Borrowings	0%	—	< 50% if last five or 1st five bus. days of mo., < 30% otherwise
	(47) Non Special Borrowings	0%	—
	(48) Primary Obligations — Total		—
	(49) Overcollateralized (44) — (48)		—	_ Must be > $0 for Collateral Agent to sweep/substitute.

V.	Sublimit Tests							Jumbo
								Super	Second-
	Test	Spec. Borr. 30%	Spec Borr 50%	120 Day	Alt A	Sub Prime	All	Only	Lien Loans
	Results	OK	OK	OK	OK	OK	OK	OK	OK

VI. Special Mortgages Loans with Date of Origination Different from Date of Assignment:

SCHEDULE III TO FORM OF SUBSTITUTION REQUEST

Mortgage Loans in which the Administrative Agent
is Granted a Security Interest for the Benefit of
the Holders of the Obligations and with Respect to which the
Principal Mortgage Documents are to be Delivered within nine (9) Business Days from the date of
origination. Unless otherwise noted on this Schedule and Schedule I, the date of origination of
each Special Mortgage Loan is the date such Special Mortgage Loan was assigned to the Collateral
Agent.

	Original						Take-Out
Originator’s	Principal	Collateral			Loan	Take-Out	Commitment
Loan Number	Amount	Value	Obligor	Interest Rate	Type	Commitment	Price

EXHIBIT C

FORM OF BORROWING REPORT

	TO: CALYON NEW YORK BRANCH as Administrative Agent under the Loan Agreement referred to below
	Attn: Florence Reyes
	U.S. BANK NATIONAL ASSOCIATION, as the Collateral Agent for the Lenders under the Loan Agreement referred to below
1.	CH FUNDING, LLC hereby requests the following Borrowing or Collateral Substitution (the “Requested Borrowing”) in the amount and on the Borrowing Date herein specified, pursuant to the Amended and Restated Loan Agreement (the “Loan Agreement”), dated as of July 25, 2003, among CH FUNDING, LLC, a Delaware limited liability company (hereinafter, together with its successors and assigns, the “Borrower”), ATLANTIC ASSET SECURITIZATION CORP., a Delaware corporation (hereinafter, together with its successors and assigns, “Atlantic”), FALCON ASSET SECURITIZATION CORPORATION, a Delaware corporation (hereinafter, together with its successors and assigns, “Falcon”), CALYON NEW YORK BRANCH (“Calyon”), as a Bank, as a Managing Agent, and the Administrative Agent, BANK ONE, NA (MAIN OFFICE CHICAGO), as a Bank and as a Managing Agent, LLOYDS TSB BANK PLC, as a Bank, and DHI MORTGAGE COMPANY, LTD., a Texas limited partnership (hereinafter, together with its successors and assigns, “DHI Mortgage”), as Servicer, as the same may be amended or modified from time to time. Capitalized terms used and not otherwise defined herein have the meanings given thereto in the Loan Agreement.
3.	Type of Request:
	o Borrowing, as described in Schedule I.
	o Collateral Substitution, as described in Schedule I.
3.	The undersigned officer of the Borrower hereby represents and certifies, and the undersigned officer of the Servicer hereby confirms, for the benefit of the Lenders and the Agent that after giving effect to the Requested Borrowing/Substitution as described above, and detailed in the attached Schedule I:

(a)	Maximum Facility Amount is	$
(b)	Total Principal Debt is	$
(c)	Availability is	$

(d)	Primary Obligations is	$
(e)	Collateral Value is	$

4. The undersigned officer of the Borrower hereby represents and warrants, and the undersigned officer of the Servicer hereby confirms, for the benefit of the Lenders and the Agent, that:

(a)	The Borrower is entitled to receive the Requested Borrowing under the terms and conditions of the Loan Agreement (and pursuant to the Assignment, if any, executed in connection herewith, the Borrower grants to the Administrative Agent a security interest in the Collateral described in such Assignment);
(b)	(i) if the Requested Borrowing is not a Special Borrowing, all Principal Mortgage Documents required under Section 3.2(b) of the Loan Agreement and that relate to the Mortgage Loans identified on Schedule II to the Assignment, if any, executed in connection herewith have been delivered to the Collateral Agent, and (ii) if the Requested Borrowing is a Special Borrowing, either (A) all such documents that relate to Schedule III to the Assignment shall be delivered to the Collateral Agent within nine (9) Business Days after the date of origination of the related Special Mortgage Loan, as required under Section 2.3(c) of the Loan Agreement, or (B) the Principal Debt that has been borrowed against such Mortgage Loans shall be repaid in full as and to the extent required under Section 2.3(d) of the Loan Agreement;
(c)	all Mortgage Loans, Principal Mortgage Documents and Other Mortgage Documents in which the Administrative Agent is granted a security interest pursuant to the Assignment, if any, in connection herewith, comply in all respects with the applicable requirements set forth in the Loan Agreement and the Security Agreement;
(d)	at all times relevant to this Agreement, total Collateral Value attributable to the types or categories of Collateral referred to in the definition of Collateral Value has not, and does not now, exceed the limitations established in such definition;
(e)	no Default or Event of Default has occurred or is continuing;
(f)	no change or event that constitutes a Material Adverse Effect as to the Borrower has occurred;
(g)	If at any time the total Collateral Value of all Eligible Mortgage Collateral is less than the Primary Obligations, the Borrower either provided additional Eligible Mortgage Collateral with a sufficient Collateral Value or paid Principal Debt in an amount sufficient to correct the deficiency within two Business Days after notice.

5. The representations and warranties of the Borrower and the Servicer contained in the Loan Agreement and those contained in each other Transaction Document to which the Borrower or the Servicer is a party are true and correct in all material respects on and as of the date hereof. The Borrower also represents and warrants that unless otherwise

noted on Schedule I to this Requested Borrowing, the date of origination of each Special Mortgage Loan is the date such Special Mortgage Loan was assigned to the Collateral Agent.

6. All of the conditions applicable to the Requested Borrowing pursuant to Section 4.2 of the Loan Agreement are and will be satisfied immediately before and after giving effect to the Requested Borrowing.

	CH FUNDING, LLC,
	as the Borrower
Date: _____________________		By:
		Name:
		Title:
	DHI MORTGAGE COMPANY, LTD.
	as the Servicer
Date: _____________________	By:      DHI MORTGAGE COMPANY GP, INC.,
		its General Partner
		By:
		Name:
		Title:

EXHIBIT F

FORM OF SERVICER MONTHLY REPORT

[Date]

Calyon New York Branch,
      as Administrative Agent under the Loan
      Agreement referred to below
Calyon Building
1301 Avenue of the Americas
New York, New York 10019
Attention: Conduit Securitization

Re: Amended and Restated Loan Agreement dated as of July 25, 2003, among CH FUNDING, LLC (the “Borrower”), ATLANTIC ASSET SECURITIZATION CORP., FALCON ASSET SECURITIZATION CORPORATION, CALYON CREDIT LYONNAIS NEW YORK BRANCH, successor in interest to Credit Lyonnais New York Branch, as a Bank, as a Managing Agent and the Administrative Agent, JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, successor in interest to Bank One, NA (Main Office Chicago), as a Bank and as a Managing Agent, LLOYDS TSB BANK PLC, as a Bank, and DHI MORTGAGE COMPANY, LTD., formerly known as CH Mortgage Company I, Ltd., as the Servicer (the “Servicer”) (such agreement, as from time to time supplemented, amended, restated or extended, the “Loan Agreement”).

     Pursuant to Section 3.7 of the Loan Agreement (terms not otherwise defined herein being used as defined in the Loan Agreement), the Servicer hereby confirms that, as of the date hereof:

1. The Default Ratio does not exceed 1%. Computations of the Default Ratio and the Sixty-Day Default Ratio are attached on Schedule I hereto.

2. (A) Set forth on Schedule I is (i) delinquency of Mortgage Loans owned by the Servicer as a whole and (ii) delinquency of Mortgage Loans owned by the Borrower that are financed by the Lenders and constitute Collateral under the Loan Agreement and (B) and other information set forth on Schedule I is true and correct.

3. No Default, Event of Default, Servicer Default or Advance Cessation Trigger exists.

4. The Originator’s Net Worth is $___, which is not less than $70,000,000.

5. The Excess Spread is ___% and is not less than 0.5%. Computations of the Excess Spread are attached on Schedule I hereto.

6. The amount of funds in the Reserve Account is $___, and this amount is not below 0.5% of the Maximum Facility Amount.

7. The Collateral Value is equal to or exceeds the Primary Obligations.

8. Based upon information set forth in D. R. Horton’s most recently filed report on form [10-K] [10-Q] [8-K], D. R. Horton’s Leverage Ratio is ___, and this ratio is below 2.10:1.

9. Based upon information set forth in D. R. Horton’s most recently filed report on form [10-K] [10-Q] [8-K], D. R. Horton’s Consolidated Net Worth is ___, and this amount is not below $1,250,000,000.

10. Based upon information set forth in D. R. Horton’s most recently filed report on form [10-K] [10-Q] [8-K], D. R. Horton’s EBITDA/Fixed Charge Ratio is ___, and this ratio is not below 2.65:1.

11. D.R. Horton is rated ___by S&P, ___by Moody’s, ___by Fitch, and thus, has all of the Required Ratings.

12. D.R. Horton owns, directly or indirectly, all of the outstanding equity ownership interests of the Borrower.

13. The Pool Weighted FICO Score Average is ___.

Very truly yours,
DHI MORTGAGE COMPANY, LTD.
By:      DHI Mortgage Company GP, Inc., formerly
known as CH Mortgage Company GP, Inc., its
general partner
By:
Name:
Title	:

SCHEDULE I

I.	Change in Borrowings Requested
			Current		Prior Unmatured Borrowings in Place
	(1) Amt of Borrowings (maturing)		—		—			—
	(2) New Borrowing requested		—		—			—
	(3) Borrowing or Substitution Date
	(4) Int. Period Maturity/Term (days)
							Jumbo
								Super	Second-
			Total	Conforming	Alt A	Sub Prime	All	Only	Lien Loans
	(5) Maximum Facility Amount/Sublimits
II.	Prior to Request
	(10) Collateral Value (mtgs) per CA report		—	—	—	—	—	—
	(11) Special Mtg Loans (wet)		—	> Nine (9) Business Days from origination.
	(12) Non Spec Mtg Loans (dry)		—
	(13) Collateral Value (Cash Collection)		—
	(14) Total Collateral Value		—	—	Collateral in pool for over 120 days
	(15) Total Borrowings/Principal Debt		—
	(16) Special Borrowings	0%	—
	(17) Non Special Borrowings	0%	—
	(18) Primary Obligations — Total		—
III.	Substitutions or Change in Borrowings only (Assignments to be attached)
	(20) Unpaid Mortgage Loan Balance *		—
	(21) Take Out Commitments *		—
	(22) Lesser of (20) or (21)		—
	(23) Advance Rate			98%	97%	90%	98%	95%		95	%
	(24) Collateral Value *		—	—	—	—	—	—
	(25) Special Mtg Loans (wet) *
	(26) Non Spec Mtg Loans (dry) *
	(27) Collateral Value Cash — Collection *			_ Amt of Cash Collateral to be (swept) by Collateral Agent
	(28) Collateral Value Change *		—
	(29) Net Borrowings/Principal Debt *		—
	(30) Special Borrowings *	0%	—
	(31) Non Special Borrowings *	0%	—
	(32) Primary Obligations *
	* — Denotes net change of new assets less previous assets being substituted/removed/matured.

IV.	Portfolio After Request
	(40) Collateral Value (mortgages)		—	—	—	—	—	—
	(41) Special Mtg Loans (wet)		—
	(42) Non Spec Mtg Loans (dry)		—
	(43) Collateral Value Cash - Collection		—
	(44) Total Collateral Value		—
	(45) Total Borrowings/Principal Debt		—
	(46) Special Borrowings	0%	—	< 50% if last five or 1st five bus. days of mo., < 30% otherwise
	(47) Non Special Borrowings	0%	—
	(48) Primary Obligations - Total		—
	(49) Overcollateralized (44) — (48)		—	_ Must be > $0 for Collateral Agent to sweep/substitute.

V.	Sublimit Tests							Jumbo
								Super	Second-
	Test	Spec. Borr. 30%	Spec Borr 50%	120 Day	Alt A	Sub Prime	All	Only	Lien Loans
	Results	OK	OK	OK	OK	OK	OK	OK	OK
VI.	Special Mortgages Loans with Date of Origination Different from Date of Assignment:

EX-10.4

Exhibit 10.4

Summary Compensation of Named Executive Officers

Executive Officers — Chief Operating Officers.

The Executive Committee of the Board of Directors set the base salaries and performance bonus criteria of the Chief Operating Officers (“COOs”) in Table I for fiscal year 2005. The Compensation Committee and the Board of Directors subsequently ratified the compensation for the COOs. For fiscal 2005, the Executive Committee has not taken any action that would increase the salary or bonus payable to the three COOs of the Company beyond what was approved at the beginning of the prior fiscal year.

Table I

Name	Office	Annual Base Salary		Performance Bonus
		(Fiscal 2005)		Under the COO Bonus
				Plan
Gordon D. Jones	COO — West	$	175,000	See Note 1
Thomas F. Noon	COO — California	$	175,000	See Note 1
George W. Seagraves	COO — East	$	175,000	See Note 1

Note 1: Under the bonus plan for our COOs, Mr. Jones, Mr. Noon and Mr. Seagraves each received a bonus payment based upon achieving certain performance goals with respect to quarterly consolidated pre-tax income applicable to their respective operating regions. These goals were set by the Executive Committee of the Board of Directors at the beginning of the fiscal year and the payments were subsequently ratified by the Board.

In addition, each of our COOs may participate in two separate deferred compensation plans. The first plan allows the executive to make voluntary income deferrals. The second plan is a promise by the Company to pay retirement benefits to the executive. If the executive is employed by the Company on the last day of the current fiscal year (for example September 30, 2005), then the Company will establish a liability to him equal to 10% of his annual base pay as of first day of the current fiscal year (for example October 1, 2004). This liability will accrue earnings in future years at a rate established by the administrative committee.

EX-12.1

Exhibit 12.1

D.R. HORTON, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

	Nine Months
	Ended			For the Fiscal Years Ended September 30,
	June 30, 2005			2004			2003			2002			2001		2000
							($ in millions)
Consolidated pretax income before cumulative effect of change in accounting principle	$	1,474.2		$	1,582.9		$	1,008.2		$	647.5		$	407.8	$	309.2
Minority interests in pretax income of subsidiaries which have incurred fixed charges		—			4.8			8.8			1.3			—		—
Minority interests in pretax losses of majority owned subsidiaries which have incurred losses		(0.2	)		(0.3	)		(0.9	)		(0.2	)		—		—
Distributed income of 50%-or-less-owned affiliates, net of equity income or loss		—			—			0.6			0.7			—		—
Amortization of capitalized interest		158.6			249.1			219.4			136.1			91.4		69.6
Interest expensed		18.4			17.5			19.5			17.8			17.7		18.7
Earnings	$	1,651.0		$	1,854.0		$	1,255.6		$	803.2		$	516.9	$	397.5
Interest incurred	$	223.1		$	250.9		$	253.8		$	210.6		$	139.9	$	112.8
Fixed charges	$	223.1		$	250.9		$	253.8		$	210.6		$	139.9	$	112.8
Ratio of earnings to fixed charges		7.40			7.39			4.95			3.81			3.69		3.52

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION
302(a)
OF THE SARBANES-OXLEY ACT OF 2002

      I, Donald J. Tomnitz, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of D.R. Horton, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report on Form 10-K) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2005	/s/ Donald J. Tomnitz
	By: Donald J. Tomnitz        Vice Chairman, President and        Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302(a)
OF THE SARBANES-OXLEY ACT OF 2002

       I, Bill W. Wheat, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of D.R. Horton, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report on Form 10-K) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and to the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 9, 2005	/s/ Bill W. Wheat
	By: Bill W. Wheat        Executive Vice President and        Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of D.R. Horton, Inc. (the “ Company”) on Form 10-Q for the quarterly period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald J. Tomnitz, Vice Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 9, 2005	/s/ Donald J. Tomnitz
	By: Donald J. Tomnitz        Vice Chairman, President and        Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of D.R. Horton, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bill W. Wheat, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 9, 2005	/s/ Bill W. Wheat
	By: Bill W. Wheat Executive Vice President and Chief Financial Officer