M/I Homes: Leaner and Trimmer or Weaker and Dependant?

Nov. 3.08 | About: M/I Homes, (MHO)

M/I Homes (NYSE:MHO) faces the future with less debt and less land. They're banking on bigger federal tax incentives and the continued health of the mortgage securities market. Quotes from M/I Homes Q3’08 conference call

On debt:

At the end of the third quarter the balance [on our homebuilding credit facility] was zero and we now have $14 million cash on hand… Our net debt to capital ratio… is now 32% [from 44% in 2007.]

Not buying much land:

We [plan] this year about spending [sic], $30M on land and $40M on development… We only spent $3 million on land in the third quarter.

Builders are trying to get a $20K tax incentive for all homebuyers passed:

Q: What you’re proposing… is to basically get down payment again and then use the mortgage rate buy down? [Isn’t it] in fact DPA, but now you’re putting a mortgage rate buy down with it?

A: We’re in a crisis and we’ve got to stop falling prices.

Q: But isn’t a risk if a lot of those peoples say “buy a Home until the fall.”

A: If we’re fortunate enough to see a housing package that provides you tax credit, it should be for a very short period of time… certainly no more than nine months; enough to help us restore some essence of demand and start to stop the falling prices.

The mortgage securities market is alive and well:

We sell our mortgages along with their servicing rights to a number of secondary market investors. Our main investors in the third quarter were CitiMortgage, Wells Fargo, Chase and Countrywide. We have not repurchased any mortgages this year. Our mortgage operation captured about 84% of our business in the third quarter, compared to 2007’s 77%.