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Congress Throws Billions At Housing

What's the trade as the Senate moves swiftly to help prop up homebuilders? Find out from CEO Ara Hovnanian.

Late Wednesday, after much hashing and re-hashing behind closed doors, a bipartisan team of Senators emerged with the beginnings of a bill to help troubled borrowers, local communities and the nation’s home builders, explains CNBC’s Diana Olick in her blog.

The Senate bill, would allow builders to carry back losses on their taxes four years, i.e. to more profitable years.

Ara Hovnanian, CEO of Hovnanian Enterprises joins the panel for this conversation. Following is a summary of what was said.

Do you think you’ll get tax relief from Congress?

“I definitely think so.” replies Hovnanian. “Congress recognizes that housing is at the epicenter of the economic problems of the Untied States, right now. And they are determined to do something that’s going to help the industry.”

“The homebuilders have been hurt,” he adds, and (Congress) just wants to bring stability to one of the fundamental core markets in this country that affects American wealth. Buyers are just too frightened. We need to bring some stimulus to get this market stabilized.”

Like what?

“Like the tax credits,” he replies, “and being able to carry back net losses more than two years.”



Robert Toll         Toll Bros.                      $244,192,327
Ara Hovnanian     Hovnanian Ent.              $31,728,385
Jeffrey Mezger     KB Home                      $28,272,579 

All Homebuilder Insiders:             $1,014,139,676

Source: Thomson Financial


The chart reveals that you sold a great deal of your stock at the top, as did other prominent CEO’s in the housing industry. And now you need a tax credit?

“Stock is a major part of our compensation,” replies Hovnanian. “If you think we’re going to wait until our graves (to sell stock), that’s crazy. When the stock goes up people want to sell. And ps, I’ve got 98% of my holdings. What I sold at the time was not a significant amount of my holdings.”

I find it hypocritical, says Karen Finerman after the interview, to hear the conference calls when the home builders say they’re fine and then they tell Congress they need help. If they want to raise cash they should issue equity, she adds. Of course, the homebuilders don’t want to do that because they don’t like the price they’ll get.

The point is, if you’re an equity holder in a cyclical business you profit at the top and take the pain at the bottom. As an industry it’s time for the homebuilders comeuppance.

I think the most interesting plays in the space are Fannie Mae and Freddie Mac , Finerman says.

Read More:

Tomorrow's Trades: Housing

> Home Builders Get Needed Break--And Yes, I Think They Should

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Trader disclosure: On Apr.3, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT), (YHOO); Najarian Owns (XLF), (AAPL), (CSCO); Najarian Owns (MER) Puts; Najarian Owns (AA) Calls; Finerman Owns (GS), (NYX), (MO), (MSFT), (FNM), (VLO), (SUN), (TSO), (FNM); Finerman is Short (GLD)