Você está na página 1de 125

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page



ProIessor Greenblatt in his Columbia Graduate Business School class passes out several Value Investors
Club write-ups by charlie479 as examples oI clear, concise investment thinking. Diligent students may
wish to go to the 2000 10-K of NVR included in the appendix (page 30) and value the company before
reading these write-ups and discussions. Or just read the write-up and discussion to have an example oI
a proIessional investment thesis. The discussion is important to Iollow Ior understanding the thinking
behind the idea. Additional write-ups by diIIerent authors are also included with their discussions.

You should be able to explain why this investment increased 5 to 6 times Irom the price oI $143. What
lessons can YOU apply to FUTURE investments?

www.valueinvestorsclub.com
--



NVR, Inc. ( NVR ) - $143.00
Posted on 06/20/01 09:29 AM by charlie479


Description

NVR is a homebuilder. Their operating model, which is unique (and which is described later), allows them to
assume the least risk in the industry and produce returns that are the largest.

Homebuilders are generally dismissed because they're cyclical and interest-rate sensitive (really, though,
which industry isn't?) and downturns inevitably leave homebuilders holding large inventories of unsold
properties -- the unlevered builders then suffer large inventory write-downs while the levered builders go into
bankruptcy. However, NVR's model will prevent it from suffering the same fate and, indeed, NVR will prosper
in a downturn at the expense of the weaker builders.

Two of the most important facets to its operating model are:

(1) NVR acquires control of land inventory through options contracts. These contracts give NVR the right to
Crlglnally he boughL aL
abouL $24 ln 1997 for 33
of moLher's porLfollo vlC
reporL on !une 2001 aL $143
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

buy finished lots from developers. NVR secures a supply of land for its homebuilding operations through the
use of these options whereas other homebuilders purchase land outright and engage in land development. By
avoiding that speculative practice of land purchase/development, and instead using options, NVR is able to
control large blocks of land (years' worth) in its markets while employing less capital to do so. The lower
capital requirements of this method translate into lower inventory risk and greater returns on capital.

(2) NVR pre-sells nearly all of its homes. Other homebuilders typically participate in some speculative
construction. NVR does not. Before NVR begins construction, an order must be placed and a deposit made.
This practice reduces risk and working capital requirements, which further enhance returns on capital.

In addition to NVR's superior model, consider the following:

-- Low valuation: NVR trades at a P/E of 8.6x trailing (7.1x 2001E EPS) and a TEV / EBITDA of 4.7x (trailing).
TEV / (EBITDA - Capex) is 4.8x (trailing). TEV / FCF is 7.8x (trailing). I am defining FCF as Net income plus
D&A minus Capex.

-- Backlog: NVR has a backlog of 5,765 ordered homes. These homes represent $1.49 billion of revenue. To
put this into perspective, this is nearly three fiscal quarters of revenue. In addition, the homes in backlog
carry higher gross margins than the ones in the historical results. All of this should translate into higher EPS.
(Management says 2001 EPS should be just under $20 per share. In the short history that the company has
provided guidance (previously they refused to) they have consistently been ridiculously conservative. Their 1Q
results and the backlog indicate to me that the $20 EPS estimate continues to be the case).

-- High ROIC: The low capex nature of its business ($301 mil LTM homebuilding EBITDA versus consolidated
LTM Capex of $5 mil) and the low working capital requirements of its model allow NVR to produce superior
returns on invested capital: 45.3% in 2000, and 5-year average ROIC of 25%. Bonus fact: In 2000, NVR sold
$325 mil more homes than it did in 1999, yet inventory (the bulk of a homebuilder's working capital
requirement) increased only $11 million.

-- Intelligent allocation of excess capital: High returns on capital and excess cash flows are only useful if you
have a management that is smart about deploying it. In NVR's case, management has chosen thus far to
deploy that capital to buy back its own stock. Between 12/31/93 and 12/31/00 the company reacquired 13.5
mil shares. In the first quarter of 2001, NVR purchased another 0.85 mil shares For perspective, there are
only 8.1 mil primary shares out today (I'm using primary shares to illustrate this but I use diluted shares for
enterprise value calculations).

-- Homes a basic necessity: People will always need homes to live in. The process of building a home has not
changed materially in decades. Neither of these statements is likely to change in the next year, the next 5
years, or even the next 20 years. There is minimal technological or obsolescence risk.

-- Dominant in its markets: NVR competes in 18 geographic markets. It is the #1 player in 10 of them. As for
the remaining 8, it is usually #2 or #3 (always at least in the top 5). The rest are markets that NVR has just
recently entered and will dominate with time.

-- Tax factors: The industry has indirectly enjoyed the benefits of a government subsidy in the form of tax
deductible mortgage interest. Additionally, in the last few years, homebuyers no longer have to pay tax on the
first $500k of capital gains on a home. This lowers the effective purchase price of a home for a consumer,
increases the relative attractiveness of a home as an investment, and adds a little boost to demand for NVR's
product.

NVR's profits and market dominance are all the more amazing when you remember that the results have been
achieved without land development. NVR has margins better than its competitors despite the fact that other
homebuilders benefit from the gross margin boost of speculative development in an inflationary environment.

atalyst

The small number of shares outstanding occasionally creates large downward gaps. NVR's recent 25% drop is
one such opportunity.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Also, share repurchases will continue to drive the stock. It's hard to overemphasize the magnitude of the
repurchases or the wonderful track record of buybacks:

12/31/95: 15.21 (millions of shares outstanding)
12/31/96: 13.57
12/31/97: 11.09
12/31/98: 10.39
12/31/99: 9.17
12/31/00: 8.86
04/18/01: 8.14 END

!rofessor Greenblatt says, 'To this day I hand out the first three write-ups he wrote on the Jalue Investors Club
every year to my students at Columbia, to show them what a brilliant, concise, strightforward and clear
investment thesis looks like. You cant ask for more than what he wrote.`
Discussion
6 tim321 06/20/01 05:21 PM
Option
Model
NVR's option model relies heavily on the relationships that have been developed over the years with local
developers in the markets it operates in. It is NOT a foregone conclusion that similar deals can be struck in
the new markets that NVR chooses to enter (remember, they still derive a majority of their revenue from the
D.C./Maryland area). This strategy may restrict growth to markets where such a strategy is viable (note
however that they have entered 6 new markets over the past five years).
NVR management recently showed a slide that detailed how through an investment of 96mm, they controlled
36,600 lots and produced $9.4 billion in revenue. While other homebuilders show negative operating cash flow
during economic expansions (due to significant land reinvestment) NVR generates significant operating cash
flow. As Charlie stated, even with softening, NVRs write-downs would primarily be limited to forfeiture of
option deposits (they would also try to be renegotiated to reflect prevailing economic conditions).


#
Author Date Subject Private




charlie479 06/20/01 06:54 PM
Extension
of the
model to
other


Tim, I think it will not be a piece of cake to apply NVR's operating model to new markets. For this reason, I
doubt that NVR will ever be a nationwide builder. In some markets (California for example) there are too
many eager, speculative builders who are willing to bear the risk of owning land. No land developer would sell
an option on their land when they can just sell it outright to an eager-beaver builder who wants to speculate.

NVR does not need to expand into new markets in order for the stock to go up. In fact, I prefer that NVR stick
to its markets where it can use the option model and reinvest the excess cash flow into stock buybacks rather
than into operational expansion into new markets. So far, management has been very prudent about only
expanding into markets where it can apply its model. It has not been tempted to use its massive cash flow to
expand into areas where the economics are not as attractive.

Still, NVR will be able to find markets here and there to expand into:

One reason that NVR has been able to employ the options model is that it has long-standing relationships with
developers who are willing to sell NVR options (these relationships represent another moat around its
business, but that is a topic for another post). NVR has been able to leverage those relationships and extend
into adjoining markets. Generally, these developers are in the same markets and will work with NVR under the
same model in the new market.

The other reason that they have been able to use the options model is that they are usually the largest builder
in the markets they are in. If you are a tiny local developer and NVR comes in and offers to buy options on
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

6 tim321 06/20/01 05:21 PM
Option
Model
your entire inventory, and is willing to begin a working relationship with you to potentially buy your future
inventory, you'd consider going to the options model. It sure beats selling one property here and there to
Joe's Homebuilding Shop or Bob's Homes R Us. As long as there are markets served primarily by small,
private builders, NVR will be able to find new markets where it can apply its operating model. I remember
reading a statistic that less than 20% of all homes built in the US are built by the publicly-traded builders. If
this is true, there are still markets that NVR can enter and be the big bully.
7 charlie479 06/20/01 05:31 PM lil

I am always on the lookout for reasons that NVR might deserve its low multiple. You have an interesting
theory about the Street questioning their no-land model but I am not certain it's right.

NVR has options to buy enough land for 2 to 3 years' worth of sales so there is little danger that they will run
out of plots. If you look at the "Contract land deposits" item on the balance sheet and make some estimates
knowing that these options are roughly 5% of lot value, you can see that their effective land inventory is in
line with management's statements about having 2 to 3 years of land.

As for your suggestion that the cost of options will be substantial in a downturn, I think the opposite will be
true. In a deflationary environment, land developers will be more than happy to sell options cheaply -- they
won't be worried about foregoing rising land prices. Just think about equity options: in a bull market, the call
option prices on the S&P index tend to become more expensive than they are in a bear market.

Also, in a downturn, NVR will be able to walk away from its options while the other builders will suffer larger
losses because they own the land outright.

Yes, all of these homebuilders are cheap on a P/E basis. Some of them deserve low P/Es -- many have
leveraged themselves in order to buy land and speculate on development, and none of them (other than NVR)
produce attractive returns on capital because of their operating model. So perhaps a sub 10 P/E is appropriate
for the leveraged companies in the industry with 10% returns on equity.

However, NVR does not have these same drawbacks. It's leverage and ROEs are magnificent. Maintenance
capex is almost zero. I am mystified that any company with these characteristics trades for less than a market
multiple. I suspect that it is because 90% of all investors have (like you) said to themselves "oh, all of the
stocks in this industry trade for a low multiple, it's not really that undervalued after all" without really thinking
whether the financial characteristics of this specific company warrant a low multiple.

More broadly, I do not think it's relevant to look at industry multiples in evaluating a stock. I know that this is
not what Investment Banking analyst programs having been teaching for years ("always look at the comps")
but Buffet would retort: What Mr. Market is willing to pay for your business today has no impact on your
business's intrinsic value. So why should Mr. Market's offer for your neighbor's business have any more impact
on the intrinsic value of your company? Surely if Mr. Market started quoting Pepsi at 50% of its current value,
you don't think it would alter the intrinsic value of Coca-Cola, do you?


5 lil305 06/20/01 04:07 PM
Option
model
I have been watching NVR as well- their RoC jumps out of most return on investment screens. In order to
make an apples to apples comparison (since so many of these companies have a large amount of debt), I
recently did an analysis of adjusted earnings (NIAT+ interest, tax adjusted) to EV for the 7 largest home
builders (CTX, DHI, KBH, LEN, NVR, PHM, TOL). NVR is the cheapest stock by that measure among the group.

I confess that I dont fully understand why NVRs stock price trails the group - the lack of Wall St attention is
too pat. I think that the market may be questioning their model, specifically, their lack of land inventory. The
market may think that they will have trouble finding adequate building plots in the future at competitive prices
or that in a downturn, the cost of the options on unused land will be substantial (a situation not faced for
many years). Id love to be educated more on this issue (I doubt that there is any problem applying their
option model to new markets as suggested by tim321).
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

6 tim321 06/20/01 05:21 PM
Option
Model

All of these stocks are cheap by normal measures - their operating margins and profits have gone up
incredibly for the last 10 years - and the cycle shows no sign of turning given the lower interest rates. Todays
Lennar results have propelled the entire group so your recommendation looks timely. But, the relative P/E
ratio of these companies has historically been around 60% of the market P/E. Notwithstanding the superior
cash flow and share repurchase policy, I view NVR as a trading opportunity to be sold on any run ups - the
market just wont apply a decent multiple. The market schizophrenia about the industry should result in
continued volatility (buying and selling opportunities). All of that leads me to think that I can wait for the price
to come down to 125 before jumping in.
4 charlie479 06/20/01 03:41 PM
tim and
cherb
Thanks for the feedback.

Tim, I agree that NVR gets little attention from Wall Street. I have owned this stock for 4 years and during
that time, they have not held any earnings calls or even hired a public relations firm. Only a few months ago
did they give their first ever public presentation to investors. A couple of other firms have picked up coverage
recently in addition to UBS. CSFB and Legg Mason both do fine jobs. They have grown to become such a large
and dominant homebuilder that the equity analysts can no longer ignore it, even though NVR will not generate
any investment banking business for them.

I agree that any reasonable DCF produces a value north of $300. That is still only still only 15x P/E by the
way, for a company with high ROICs and its 2001 EPS in contractual backlog.
3 charlie479 06/20/01 03:31 PM
I forgot
to add
NVR has a little mortgage banking business that I did not include in the valuation. I have excluded its
contribution to EBITDA in my calculations (but I did not make any corresponding beneficial adjustment to
enterprise value) for the sake of conservatism and also to illustrate what great cash flow the homebuilding
operation produces just by itself.

If you liquidated the mortgage banking business and gave no credit to the ongoing stream of income that it
produces, you would get approximately $3 per share.

There is no risky subprime lending going on in this division. It is strictly Fannie Mae type stuff that NVR
immediately resells. And NVR no longer writes loans for any other builders.
2 tim321 06/20/01 02:25 PM Ditto

Charlie - Was just about to post on these guys. A few notes to add.

Besides an ROIC of 40+, NVR has shown a five year EPS growth rate of 70%. The company gets little
attention from Wall Street (UBS Warburg is the only company that follows them) because management
doesn't care much about street opinion (talked to other homebuilding analysts who once covered the stock) or
I-banking business. Any conservative DCF model will get show NVR's intrinsic value at least in the 300 dollar
range. As Charlie stated, the company has bought back 40% of the float since 95 and has outperformed all of
its peers in almost every relevant category (I attribute this to what I believe is its competitive advantage - the
risk here is that its CA isn't replicable in the other markets it enters). NVR was recently in the 200 dollar range
but fell after some significant insider sales.
Run any kind of shareholder return on NVR (5 year, 3 year, etc.) and NVR is always at least 2x its next closest
competitor. There is a fundamental reason for this.
1 cherb405 06/20/01 01:41 PM
Great
company
NVR is a great company.

# Author Date Subject Private
28 andrew109 09/27/01 02:10 PM charlie

Charlie -- I agree with you that homebuilding is not a "bad business" (as gopher suggested). However, I don't
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

# Author Date Subject Private
understand your reasoning for suggesting that % would be the homebuilder that you would short (assuming
you were forced to choose one to short).
27 charlie479 09/19/01 11:37 AM gophar

>>Which companies in the space do you feel our most overvalued? - is there a paired trade opportunity that
makes sense?

I generally discourage a paired trade in this industry. This is not because I disagree with your assessment that
most of the companies in the sector are bad businesses, but because many of these companies already trade
for extremely low P/Es. The potential downside of shorting something with a low P/E (even in a paired trade)
can be massive.

That said, if you insist on shorting something as part of a pair, I'd do a simple screen and pick out the most
leveraged lenders. These are the ones run by aggressive management who have been unable to resist
accumulating inventory. Centex pops up at the top my screen.
26 gophar571 09/10/01 12:08 AM
Great
company in a
bad industry

Great Idea. I really like this company. Unfortunately, I am extremely bearish on real estate right now and
can't get comfortable going naked long a homebuilder. Which companies in the space do you feel our most
overvalued? - is there a paired trade opportunity that makes sense?

thanks.
25 charlie479 07/20/01 10:46 AM
NVR, Inc.
Announces a
60% Incr

NVR announced 2Q results today. Orders and backlog were up. Free cash flow improved and the company
repurchased another 300k shares in the quarter.

Management now estimates EPS around $22.85 for 2001, which looks easily achievable given the average
selling prices of the homes in backog.
24 charlie479 07/10/01 06:02 PM
follow up for
elan
The example we were using was a little too simplified and ignored cost of capital. Therefore, the example
produced a result that showed the developer was not being compensated for his cost of capital (or his
development efforts) if he went down NVR's option path.

In reality, the developer would be compensated for cost of capital and their development efforts. For example,
for a lot worth $100k in 2 years that NVR would pay a $5k deposit for today, a developer might be able to sell
that same land now but they wouldn't get $100k for it. The sale price would be something lower -- with the
difference being the profit that the developer gets in return for holding and developing the property over that
time period.

This does not alter the conclusions of our previous example. Other builders will enjoy higher embedded gross
profits per unit than NVR in a stable to rising environment but they will tie up more capital (and produce lower
returns) to do so. Obviously, the other builders assume more risk and it shows up in the falling price
environment. NVR will not have large amounts of capital tied up in a recession and its losses on inventory will
be lower than the other builders. The other builders will likely be left with large amounts of debt while they try
to liquidate excess land.

Despite this inherent gross profit disadvantage in the recent inflationary environment, NVR has in recent years
been able to generate gross margins that compare favorably to other builders. I am repeating what I've
already said in previous posts but I believe this is a result of their operational efficiency and dominant position
in its markets.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

# Author Date Subject Private
23 stat820 06/29/01 01:00 PM Congrats

Well-deserved winner of the week.
22 elan19 06/26/01 12:21 PM KBH

From today's 6/26/01 conference call for homebuilder KB Home (which focuses on low end single family
homes in the Western half of U.S.), I thought readers of this board would be interested in the following:

Out of KBH's current 73,000 lot positions, 26,000 are optioned, and management indicated (in response to a
question on whether working capital requirements could be reduced) they hope to increase the percentage of
optioned lots, in markets where that can be done.

Anyone know if this is a goal of most of the traditional home builders?
21 charlie479 06/25/01 01:16 PM
Rumors of
demise
exaggerated

FYI. These are existing home sales but they are generally highly correlated with new home sales.

Existing-Home Sales Rise Unexpectedly
As Housing Sector Remains Strong

A WALL STREET JOURNAL ONLINE News Roundup


Sales of existing single-family homes rose in May as the housing sector continued to show resilience to the
sluggish economy.

See the report from the National Association of Realtors on existing-home sales in May.

Read analysis from Briefing.com on the home-sales report.

Existing-home sales rose 2.9% to a seasonally adjusted annual rate of 5.37 million in May from an upwardly
revised pace of 5.22 million in April, the National Association of Realtors said Monday.

Economists surveyed by Thomson Global Markets had expected sales to be flat.

"With slightly higher mortgage interest rates in a slowing economy, some forecasters have been expecting a
sales slowdown," said David Lereah, the association's chief economist. "However, demand is still very high,
interest rates remain close to historic lows and many people are confident about their own economic future."

The national average rate for a 30-year, conventional fixed-rate mortgage was 7.34% in May, according to
HSH Associates, a Butler, N.J., research firm.

The median price for an existing home was $145,500 in May, up 5.7% from May 2000 when the median price
was $137,600.

Housing inventory levels at the end of May dropped 6.1% from April to a total of 1.53 million existing homes
available for sale. However, the May inventory level is 2.7% higher than May 2000, when 1.49 million homes
were on the market.
20 charlie479 06/24/01 06:34 PM elan

Management has said that options are typically 6% to 7% of land value. This is not quite as cheap as the 5% I
used in my example, but I agree with you that it's still fairly cheap. I will try to confirm these prices again.

You raise a good follow-up question: if the options are so reasonably priced, why don't the other builders go in
and bid on them? I have two theories on this: (1) The other builders still prefer outright land purchases
instead of options because of the greater profit potential in an inflationary or rising environment. Therefore,
competition for land is always intense, but not necessarily for options. (2) There are local oligopolies in the
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

# Author Date Subject Private
homebuilding industry. Builders need a certain thresh-hold level of construction and sales activity in an area
to reach economies of scale for purchasing materials, showcasing model homes, having sales agents, etc. If
there is a builder that already controls most of the land in a locality (years' worth, even), it is difficult for
another builder to get enough inventory to support a critical level of sales. Therefore, even if there are an
option here and there to acquire at cheap/reasonable prices, competition for them is limited to existing
builders in the area with enough scale. Note that NVR is the largest builder in over half its markets, and is
number 2 or 3 in almost all the rest.

Your question deserves a more thorough answer, so I will attempt to get management's opinion about why
other builders don't compete vigorously for these options, and what motivates developers to sell options at
such prices.

I agree that this could be one reason management does not like to communicate with the street. The other
rumored reason is that NVR has been an eager acquirer of its stock and management is interested in
increasing its stake relative to the public float at the cheapest price possible. I've never quite believed this
(sounds too much like a conspiracy theory). I think the most likely answer is they just don't like the Street
and prefer to focus on the operating the business than promoting the stock.
19 elan19 06/24/01 11:15 AM
More
comments
Thanks for your detailed reply. A large cost you left out of your analysis is the cost of capital - assuming all
land and options are acquired with borrowed money, RVN has to pay interest for the money borrowed to
acquire the land. Using 8% simple interest for 2 years on the $95,000 difference between acquiring land out
right for $100,000 at the beginning of the 2 years versus buying an option for $5000 at then exercising at the
end of the 2 years, this results in extra interest costs for RVN of $15,200. So NVR comes out better in a
scenario of rising land prices as well.

Using the example numbers you gave, I can't argue with your conclusion. Do landowners truly sell options for
such foolishly cheap prices? If so, they are earning a negative return on their real estate investment when the
interest costs to the landowner are factored in. This raises further questions for me:

Why are the options so cheap?

With such cheap options, why isn't there bidding from other large home builders? Acquiring an option at a
higher price than you gave in your example is still a phenomenal deal for the homebuilder.

If the options are truly so inexpensive, then NVR is benefitting from a severe market inefficiency which I
would imagine must in the long run become more efficient due to competition. If it takes 10 or 15 years for
other homebuilders to catch on and start bidding against NVR, then that is 10 or 15 years NVR will continue to
have such phenomenal performance.

Perhaps that is why NVR maintains such a low profile with investors - perhaps they are afraid that publicizing
their success would attract other homebuilders to move into their markets using the same model. This would
cause multiple bidders for land purchase options, causing them to become more rationally priced, and causing
NVR's advantage versus other homebuilders to eventually disappear.
18 charlie479 06/24/01 10:39 AM elan

I understand your example but I think your conclusion is incorrect. I'll show that NVR's model actually
produces *inferior* absolute profits versus the competition in a stable or inflationary environment (as a
tradeoff for better returns on capital) but produces superior absolute profits versus other builders in a
deflationary environment. Given that we have been in an inflationary environment for the last 7 years or so, it
is all the more amazing that NVR has been able to produce profits consistent with operators which are using a
riskier (but, in an inflationary environment, inherently more profitable) model.

Let me use an example with slightly different numbers than you did:

1. NVR buys a two year option on a piece of land with a current market value of $100k. The option costs $5k
and entitles them to buy the land for $100k. (I believe these figures are closer to reality - it costs about 5% of
land value for an at-the-money land option).
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

# Author Date Subject Private

2. Homebuilder "RVN" buys the same piece of land for $100k.

Let's consider 3 scenarios: an environment of rising prices, stable prices and falling prices.

Rising prices. In one year, if the land price rises to $110k and NVR and RVN build a house on the land and sell
it, RVN will have an embedded profit of $10k on the land whereas NVR will have an embedded profit of $5k.
RVN and NVR will sell the house to the consumer at the same price, but RVN will realize a higher profit.

Stable prices. If the land price stays at $100k, the result is similar. RVN has no embedded profit, while NVR
has an embedded loss of $5k. Again, RVN will realize a profit that is $5k higher than NVR's.

Falling prices. If the land price falls to $90k, RVN will have an embedded loss of $10k but NVR's loss will be
limited to the $5k value of the option. NVR will simply not exercise its option and instead purchase the land at
the current market price of $90k. (NOTE: I think you incorrectly imply in your example that RVN is no worse
off than NVR in this case because it can also purchase the land at the current market price of $90k and incur
no loss. This is not correct. RVN has already purchased the land - it cannot purchase it twice. Even if RVN
finds an identical property that it can buy for $90k, it does not eliminate the fact that it has an embedded loss
of $10k on the first property).

There are two additional observations that can be drawn:

1. In a deflationary environment, buyers may not at all be interested in the specific property that NVR and
RVN bought! Buyers may instead want a property in the next town, or something near the highway, or
something in blue. NVR will be able to respond by walking away from their option on the property and then
buying the lot in the next town near the highway with the color blue. RVN will be stuck. It will have to wait for
a buyer to show up for its property, risking further price decreases in the meantime.

2. Theoretically, RVN could also try to buy the blue property in the next town to satisfy the buyer. However,
RVN will likely face capital constraints when it looks in its piggy bank for funds to buy the second property.
Remember, RVN has already incurred $100k of debt to buy the first piece of land that it holds in inventory.
It's unlikely they'll be able to borrow another $90k. (RVN may have enough cash to do this the first dozen
times, but multiply these figures by the thousands of lots that builders have in inventory to see why the debt
amounts would be too large. Note that most builders currently have significant debt. NVR has almost zero net
debt). NVR, meanwhile, has only incurred $5k of debt, so it has the financial flexibility to purchase the land.
17 elan19 06/23/01 11:48 PM
falling real
estate prices
fol

Thanks for the response. To clarify my concern about declining sales in a protracted bear market for real
estate with a specific example:

Let's say NVR pays $10,000 for an option to purchase a property for $100,000, which expires 2 years after
the date the option contract is written. Assume this property is worth $95,0000 at the time the contract is
written. Furthermore, assume that a bear market begins three months later, causing the underlying land
value to decrease to $93000 at the end of year 1, and $90,000 at the end of year two.

NVR would have 2 choices:

1) NVR could let the option expire worthless, in which case they do not buy the land, they do not build a
house on it, and they do not sell a house on this land. But they did incur an options expense, and there is no
sale of a house on this land to offset the option expense.

2) NVR could exercise the option, buy the land, build the house, and sell it, at a price the market would bear.
If this was done at the end of year two, they could profitably sell a house if they bought the land for $90,000
(+ the $10,000 option they already paid for) but if bought for $100,000, as required by the option contract,
they would be incurring an additional $10,000 expense due to overpaying for the land. Other builders would
be paying $90,000 for similar parcels and pricing their homes accordingly.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

# Author Date Subject Private
In case 1, there is no sale to offset the option expense. In case 2, the sale is far less profitable, and possibly a
loss if the option strike price is too far above the market value of the land.

And all the while, they are still incurring 6% SG&A (The fact that most work is contracted out is very helpful
as they at least will not have idle machinery). Obviously, they have a large portfolio of options with different
expiration dates and terms. But assuming many of them expire worthless as in case 1, and there are no sales
to offset the expense of the options, and the SG&A continues at the same levels, then I don't think it will be
very good for NVR, to say the least.

A conventional homebuilder, on the other hand, does not have the problem of a huge portfolio of options
expiring worthless. They can drastically slow down land purchases and continue to develop on existing
properties at a slower pace.

I don't know how the numbers would work out for conventional landholding homebuilders vs. the NVR option
model in this worst case scenario of declining real estate prices over a several year period. If real estate prices
fall over a several year period, we know this hurts conventional home builders. Would this hurt NVR more or
less than a conventional home builder? While I am convinced that NVR's model is superior in good times,
mediocre times, and slightly bad times, I am not yet convinced that NVR's model would be superior during
terrible times. Their model has yet to be tested in terrible times. Comments?
16 charlie479 06/23/01 05:15 PM mike

You make good observations.

> Developing lots is a highly politicized process, and incurably local in nature; the players will, IMO, never
consolidate due to necessity of political connections to get local approvals.

I agree. The developers that supply the homebuilders are doomed to remain small and fragmented.
Homebuilders, as they grow larger, will only gain leverage over them as the industry develops.

> In my experience, development takes place as much to assuage egos of developers as for profit, which is
why so many of them go upside down in bad times (and even a few in good).

Yes. I think many of the public builders have not (and may never) be able to stick to the "options-only"
model. It is too tempting for builders to purchase land and develop, especially in boom times. Management
sees "can't lose" development opportunities and gradually succumbs. Note that inventories of these builders
have swelled steadily as the boom 80s and 90s have continued.
15 charlie479 06/23/01 05:09 PM elan

>Options would expire over and over and over, racking up large expenses, possibly causing sales to fall more
rapidly (and losses to mount more quickly) than a traditional home builder.

If there was a steady bear market in land prices, I agree that many options would go unexercised. However, I
am not sure I agree with your characterization of these as "large expenses". For one, these losses should be
less than the losses if they had purchased the land (I'm talking about absolute dollar losses, not percentage of
original value). Secondly, the value invested in these options is not exceeding large relative to annual cash
flow. Contract land deposits were approximately $111 mil at 3/31. If it takes 3 years for all of these to expire
worthless, the company will have produced nearly $900 mil in EBITDA minus capex during that period. This is
far from ruinous and likely to be much better than the performance of other operators in such an
environment.

I'm not sure I'm clear on the point you are making in the second half of your sentence. Does the expiration of
options have any impact on sales? Sales is a function of consumer demand.

FYI. NVR uses contractors for much of the actual homebuilding. And there is very little fixed PP&E involved --
a few model homes is all that is necessary. The only portion that I consider truly fixed is the SG&A, which is
approximately 6% (and declining).
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

# Author Date Subject Private
14 mike61 06/22/01 10:58 PM
Options,
developers,
etc.

reat write-up and great discussion.

Options are used in CA, but not the dominant land transfer initiator (usually a sale w/a long due diligence
period unless its for ready-to-build lots which can trade readily). I think this is a case where NVR has the
better mouse trap and we'll see Centex, Pulte, etc. using more options in the next three to four years. Clearly
better mgmt. of capital. As builders continue consolidation they will have more leverage against developers,
and probably supply developer liquidity thru options @ early development stages (similar to miners and
farmers selling their crops forward), and get better deals thru options.
Developing lots is a highly politicized process, and incurably local in nature; the players will, IMO, never
consolidate due to necessity of political connections to get local approvals. Builders are great consolidation
candidates, as described in previous posts, and to take advantage of NVR's model.
In my experience, development takes place as much to assuage egos of developers as for profit, which is why
so many of them go upside down in bad times (and even a few in good). This is clearly an inappropriate
activity for large builders; its a very different business. I expect publicly traded builders to do less
development over time, again gravitating existing players more toward NVR's model.
Assuming these observations are correct, Centex & others will get better @ managing capital and laying off
land risk on local players, making the whole group a better set of businesses (much as FRE & FNM became
better businesses as they learned to lay interest rate risk off on the markets).
That leaves the perennially low multiple and recession as the main risk issues (assuming insider selling is
considered elsewhere; nothing to add on that).
The low multiple, I think, will slooowwwly improve as the sector business model improves & gets recognized. I
think this is an area where the generals (the Street) are fighting the last war, and haven't figured out the
structural shift in building as an industry. However, the street's mentality on Q'ly profit hasn't changed much
in half a century, so the cyclicality (building can flat die due to buyer mentality from layoffs or high interest
rates) will always keep a lid on multiples. 12x is probably the best PE we'll ever see, for the best company in
the sector during a great year.
Looks like a great company.
13 elan19 06/21/01 07:53 PM
falling house
prices
I think this is a great idea and great write-up. One question I have is what would happen if house prices fell
over a several year period in many or all of NVR's markets? Options would expire over and over and over,
racking up large expenses, possibly causing sales to fall more rapidly (and losses to mount more quickly) than
a traditional home builder. NVR must have fixed expenses (paid staff, machines, etc.) that would rise as a
percentage of dropping sales.

Unlike many home builders, NVR's model has not yet been tested during a sustained recession, so perhaps its
low multiple reflects that uncertainty.

But clearly, relative to technology growth companies, this company deserves a higher multiple - just the
threat of recession sends tech company sales and earnings down, whereas it would take at least a pretty
severe and protracted recession (producing falling land prices and house prices for several years in a row) to
hurt NVR. It's mysterious to me that many tech companies which are demonstrating high susceptibility to
even the slightest economic slowdown are still trading at much higher multiples than NVR, despite most of
them having inferior business models even in good times.
12 charlie479 06/21/01 07:08 PM Andrew

Thank you for your post. You are obviously familiar with the industry.

#1 and #2 is true. Many other builders use options and they do try to keep speculative development low.
However, all of the other builders at least dabble in land purchases and speculative development from time to
time. Ultimately, this creates unnecessary risk and ties up valuable capital. I am still amazed that the other
companies lack the discipline to apply the NVR model exclusively. Perhaps it is because most managements
are focused on absolute dollar profits instead of returns on capital. Do you have any insights into why folks
like CTX still employ operating models that tie up large amounts of capital in inventory?

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

# Author Date Subject Private
#3 to #5 are all true and are all potential benefits to NVR that I did not mention. I hate saying this because it
is so overused by Wall Street, but the industry is truly fragmented. All of the public builders account for a
fraction of the total homes built in the U.S. (does somebody know this statistic I am referring to? I would hate
to be quoting it incorrectly here). The small private builders lack the advantages that the larger builders have
- access to lots, capital, economies of scale in purchasing, etc. And I believe there is room to create a large,
recognized brand in this industry. For many customers, it is the single largest purchasing decision of their life
when they buy a home. Customers are likely to feel safer making that purchase from a brand they recognize
and trust.
11 charlie479 06/21/01 06:49 PM michael99

Yes, there has been some insider selling recently (well-timed ones at that. I noticed most were at or near the
$200 high).

I am not terribly alarmed. These are the same folks that did a little selling at $20 and $40 and $100, etc. I
suspect that these guys are not wealthy outside of their NVR holdings and it is simply a little cashing in rather
than a vote about the prospects of the company. Management still has a meaningful stake (especially
meaningful to them).

One last note about insider selling:

Some of Berkshire Hathaway's best purchases have been acquisitions of entire businesses for cash. In several
of those cases, there was the ultimate form of insider selling -- they sold their entire stake in the business!
Despite this, Buffett still knew those companies were fundamentally great companies because he knows
sellers are motivated by a whole slew of non-business related reasons.
10 andrew109 06/21/01 10:57 AM Homebuilders

Good Report. Hopefully my insights are useful...

1. Actually, most large homebuilders don't build on "spec" any more (other than a model home in each
development).

2. Additionally, other large homebuilders frequently use land purchase options.

3. Large homebuilders are quickly gaining market share because bank financing has dried up for land
purchases (large homebuilders have access to capital markets).

4. Large homebuilders are increasing margins by leveraging their size (placing orders for 20,000 dishwashers,
etc.), using the internet to their advantage (marketing, scheduling, mortgage applications, bypassing real
estate broker commissions, etc.). These are huge opportunities.

5. Housing starts might not be that much above normal, and new housing should be in short supply over the
next few years.

6. I think Centex is very attractive here. Excellent management, very conservative accounting, good land
position, and some other businesses with lots of potential (lawn care, pest control, wiring services, etc.).

7. Please see my recommendation on Ryder (R).
9 michael99 06/21/01 09:27 AM insider selling

It's really a neat company - it comes up on screens regularly, and the financial press has interviewed analysts
now and then that point to NVR's model The buybacks have been nothing short of amazing. And it could have
been bought for 5 bucks back in 1994. The same model was in evidence back then! Now it's up 30X since
then, 3X since 2000 started. Just the sheer amount of the run-up - could that be the reason insiders are
selling and have never bought back a share as far as I can tell? This company just tricks one of my hot points:
significant insider selling into a large buyback.

No doubt, NVH along with CMH are to me the two best companies in the homebuilding industry. But the
market has in the past neglected these stocks during rougher times for the industry (even just 18 months
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

# Author Date Subject Private
ago, when NVH was at 43). Now, 9 years into a real estate boom with many analysts and Wall Street talking
heads saying that real estate cyclicality has been repealed, it seems that we've had an overreaction. I'm not
knocking NVH as a business.

This is a good healthy baby that is bound to be thrown out with the bathwater sometime. Right now,
everyone's standing around, gawking and talking up the baby's prospects while the parents are sneaking out
the back door.

Mike

1
2
3


# Author Date Subject Private
48 charlie479 07/28/05 11:58 PM tim321

Yes it's been a crazy ride. Schar's discipline in sticking to the land-light model and returning excess cash to
shareholders deserves much of the credit for the company's success. But so does a lot of luck and some of
these Option ARM thingamajiggies that folks in the other threads are talking about. Also, Schar's way too
greedy to make it to my favorite CEOs list. His mansion was paid for with wheelbarrows of liberally-issued
stock options. NVR would have been a truly fantastic one if they had just kept their stock option appetite in
check.
47 charlie479 02/11/03 03:38 PM tim321

The cash flow statement is indeed pretty good. There is almost no capex so all of the operating cash flow is
available for share repurchases, which they have been eagerly doing.

Management indeed pays no attention to wall street coverage. It's a great thing.

I noticed your previous msg. I would send you an email but the address seems to be deleted from the post.
It's probably better to post the question on VIC anyway.
46 tim321 02/11/03 11:03 AM 10-k

NVR's 10-K just released. One of the more amazing cash flow statements I have ever seen. Look at the
amount of money going into share buybacks (362mm in 02 alone). One of the research analyst's told me a
while back (kim from SSB) that the rumor on NVR was that they (management) were secretly trying to take
the company private and that management paid no attention to Wall Street coverage.
45 tim321 12/02/02 08:59 PM question

Charlie - can you email me at xxxxxx
I have a quick question for you. Thanks Tim.
44 charlie479 06/03/02 10:47 PM cfo

I have briefly met the cfo and ceo and I agree that they don't seem like the kind of guys who reward
themselves with huge pay packages. They seem like down-to-earth straight-shooting. Nevertheless, there's no
denying that they were party to these ridiculous stock option grants. So, whether they seem like it or not,
they have a failure in corporate governance and executive compensation.

Thanks for the stock candidates. I will look when I get a chance. I honestly have not any good ideas since my
NVR post (except my WNMLA post, which I like but is a different breed). I average maybe one every year or
so but this year seems to be relative short on obvious things.
43 tim321 05/28/02 10:37 PM I

talked with the CFO (Paul Saville) a while back and he did
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

# Author Date Subject Private
not seem like the kind of guy who would do this sort of thing. Very disappointing. Any new stock ideas?

P.S. - I have been researching Kookmin Bank, Regis, and Polaris. Some NVR like qualities here. Thanks Tim
42 charlie479 05/27/02 07:30 PM Options

The options grants for this company are excessive and the board's allowance of it is repulsive. This is the main
negative of this stock.

The 10K has the correct issuance number in 2001. The exact number is not important. The bigger point to
realize is that this company is reducing its stated earnings by a significant measure by issuing options every
few years.

There isn't a lot of reassuring things I can say about the options program. It's essentially one of the costs of
owning this otherwise very sound operation. I have drafted a letter to the board but have not gotten around
to sending it. Perhaps several letters from VIC members will get them to change their long-term compensation
policy.
41 mark227 04/14/02 07:17 PM
Options
(continued)
exercise value of these options divided by the current stock price. If you still don't believe me, look at the
proxy. You will see that Dwight Schar received 400,000 options, equal to 21.9% of the employee options
issued in 2001. This implies employees received 1.826 MM options last year. Perhaps some of the other VIC
members could help us resolve this issue and give their thoughts on the options grant.
40 mark227 04/14/02 07:09 PM Options

I believe that your numbers are incorrect. As I previously said, if you look at page 42 in the annual report, you
will see that last year 1,823,100 options were granted under the 2000 Option Plan and 106,000 were granted
under the 1996 Option Plan. If you simply ADD UP all the options granted, exercisable and unexercisable of all
the different plans as shown on the very next page, you will see that the number far exceeds the number that
you mentioned. The number that you are referring to is the dilutive effect from exercisable options under the
treasury stock method, which is calculated as the total number of exercisable options outstanding less the
total
39 tim321 04/13/02 04:46 PM Price

Charlie - I haven't had a chance to update my model (back when the stock was trading at 140) that showed a
very conservative value for NVR of at least 300 dollars a share. What are your risk/return thoughts now on
NVR given the huger run up (this was the company I submitted for VIC membership). BTW - While it won't
exhibit the same run-up as NVR, UST is another unique company that I believe will deliver investors a great
return (see write-up). Thanks Tim
38 allen688 04/12/02 04:39 PM options

you have the 1.8 mil figure as options granted in '01, but that is how many were outstanding at 12/31/2001.
they were issued over the past 9 years. and as far as recognizing them in their valuation, you indeed need to
include them. the company reports 7,927,315 outstanding to calculate basic and 9,525,960 for diluted. the
difference recognizes the options and forwards.
37 allen688 04/12/02 04:38 PM options

you have the 1.8 mil figure as options granted in '01, but that is how many were outstanding at 12/31/2001.
they were issued over the past 9 years. and as far as recognizing them in their valuation, you indeed need to
include them. the company reports 7,927,315 outstanding to calculate basic and 9,525,960 for diluted. the
difference recognizes the options and forwards.
36 mark227 04/11/02 04:54 PM Options

I'm looking at page 42 in the annual report. I believe there were 1,823,100 options issued under the 2000
option plan and 106,000 issued under the 1996 plan in 2000. Where are you getting your numbers?
35 allen688 04/11/02 04:06 PM
there were
344,000
issued, not

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

# Author Date Subject Private
I have a question though, what premium does this stock deserve to its peers? Its at about 45% on '02 and
'03 earnings to CTX.
34 mark227 04/11/02 02:43 PM
Option
grant
This has been a great pick and a great stock. However, according to the annual, 1.9 million options were
granted last year, which seems a tad much given the company has only 7.5 million shares outstanding?
Doesn't an option grant of this size (Black Scholes value $200 million) have to be figured into the value
equation?
33 charlie479 02/03/02 06:41 PM tim321

I don't really have a target price. With $30 per share of earnings likely this year and high returns on capital
that will continue because of its better operating model, I would not sell under $300. But this does not mean I
would sell over $300 -- this is a company to own for a long time.
32 tim321 02/01/02 05:25 PM
Current
Price
Charlie - What is your exit price on this? While the price is closing in on my target price (high 200's) I really
like the intangibles here (management, b-model etc.) that are hard to quantify. What is your take?
31 charlie479 01/14/02 01:34 PM
Another
share
repurchase

NVR authorized another share buyback last week. This one is for $300 mil, which is quite significant relative to
the market capitalization.
30 andrew109 10/04/01 12:06 PM charlie

Thanks for your response on Centex. I agree that none of the homebuilders should be shorted. I disagree,
however, that CTX is the most expensive homebuilder.

With respect to the real estate development business, you should know that the real estate was acquired
through bankruptcy (Vista) and that there is no tax basis on the land. Management is extremely smart (which
would be another reason not to short CTX)and had other reasons (taxes, etc.)for this acquisition.

With respect to the financing business, the company in two years should earn $150MM-$165MM pre-tax on
$300MM of capital.

Again, management is extremely smart and accounting is very conservative.
29 charlie479 10/03/01 11:30 PM andrew109

To be clear, I would not short any of the homebuilders. CTX benefits from the same advantages over the
private builders that NVR does. And, it's hard to make a lot of money by shorting stocks with single digit P/Es.

If I would have to pick a few builders to short, though, CTX would be on my short list. The company has
shown the behaviors that have gotten homebuilders into trouble. Centex has decided to get into the real
estate development business. They've got such developments in their huge inventory balance and they even
have a few real estate joint ventures. Additionally, they are increasing their financing operations.

I view both the financing business and the development business as capital intensive low-return businesses.
In a serious down-turn, they will be stuck with unsalable developments and loans that could potentially
deteriorate.

Look at CTX's returns on invested capital over the last 10 years. Also, note the increase in leverage. Sure
signs of a mediocre business

END DISCUSSION
---

NVR Inc. ( NVR ) - $586.00 SHOR% IDEA
Posted on 11/24/06 09:50 AM by msdonut940
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page



Summary:

We are recommending a short sale of NVR. NVR is regional homebuilder levered to the D.C metropolitan area,
with 40% of its production in this region. The company trades at 3.8x book value and 11x 2007E earnings.
harlie479 penned a prescient write-up of NVR in 2001. We suggest you read it as it includes some useful
background information. We believe that harlie479 was right because NVRs business model is similar to a
call option on the DC housing market, designed to generate excess performance in the up years. However,
there is similar leverage to the downside. Despite this leveraged business model, the stock is only down 16%,
year to date, in line with its peers. We believe the stock is worth half of where it is currently trading. Potential
catalysts in the near term: additional write-downs, lower than expected 2007 earnings, and increased
cancellations.

Detailed write-up

NVR is the eighth largest public homebuilder in the U.S by revenue. There are four different trade names
under which NVR builds homes: Ryan Homes, NVHomes, Fox Ridge Homes and Rymarc homes. Ryan Homes,
Fox Ridge Homes and Rymarc homes are moderately priced and marketed to first time homeowners and first-
time move-up buyers. NVHomes is marketed primarily to move-up and upscale buyers. The company operates
in 11 states, and 20 metropolitan areas. Its mix is as follows: 30% First-time buyer, 31% second time buyer,
and 39% active adult/age restricted/second home.

The company segments its results into four regions: Washington, Baltimore, North and South. North is
Delaware, Kentucky, Maryland Eastern Shore, Michigan, NJ, NY, Ohio and Pennsylvania. South is North
Carolina, Tennessee and Richmond, VA. The company delivered about 15,000 homes in the last twelve
months and had homebuilding revenues of approximately $6 bn.
In unit terms, 38% of their deliveries, and 42% of their backlog is in the DC/Baltimore region. Because of
higher average prices, DC/Baltimore represented over 50% of total revenues in 2005. The breakdown of
deliveries in each area is as follows:



2004 2005

Q1 06 Q2 06 Q3 06

LTM
Settlements

DC 3,523 3,663

745 1,074 869

3,781
Baltimore 1,587 1,551

465 566 463

1,999
North 5,211 5,744

1,138 1,801 1,692

6,486
South 2,428 2,829

638 856 830

3,051
Total 12,749 13,787

2,986 4,297 3,854

15,317
Average price $332.24 $374.95

$395.90 $400.30 $396.30

$395.52

% of settlements in DC/Baltimore 40.1% 37.8%

40.5% 38.2% 34.6%


Cancellation Rate

DC

26.0% 21.0% 39.0%

Baltimore

17.0% 14.0% 24.0%

North

13.4% 9.6% 22.7%

South

13.4% 9.6% 22.7%

Total

17.0% 13.0% 27.0%


An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Backlog (units)

DC

2,809 2,716 2,357

Baltimore

1,066 960 764

North

3,520 3,498 2,743

South

1,562 1,690 1,524

Total

8,957 8,864 7,388

Average price

$435.60 $428.50 $424.00


% of backlog in DC/Baltimore

43.3% 41.5% 42.2%
While we could go into some detail with regards to industry specifics, we have no desire to waste everyones
time given the bounty of better analysis with regards to whether the homebuilding industry is at a bottom, a
top, or somewhere in the middle. For the purpose of this trade, the only thing that is important is that we do
not return to a bull market next year, which even the most optimistic of homebuilder investors do not claim.
In terms of real estate, the Washington DC metropolitan area has had extraordinary performance in the last
five years. Average home price appreciation is 2.5x that the national average since 2001. As with any hot real
estate area, speculators participation in the frenzy contributed to over-building on the part of homebuilders.
Current inventory levels are over twice what they were last year, and are at the highest levels since 1998. As
demand has stabilized, the only way for this inventory to decline is either for 1) prices to drop or 2) significant
cuts in production. Both are currently being seen in the market and either scenario negatively impacts NVRs
2007 earnings power. Some data points on the DC/Baltimore region:
O Average median home price in Q3 06 was 420K
O Affordability: Washington ranked 161 out of 203 MSAs; ironically Fort Myers, FL, the land of the
million dollar condo, ranked 160.
O Virginia - Sept 06 vs. Sept 05 building permits, down 37%. YTD permits are down 22%.
O Maryland - Sept 06 vs. Sept 05 building permits, down 11%, and down 19% YTD.
O Washington DC building permits are down 23% YTD.
O Existing Inventory in Metro DC of over 30,000 homes, twice what it was last year. In terms of months
of supply, weve seen figures stating about 6-10 months of supply depending upon the county. This
number should increase as we enter into the slow selling season for DC area.
o Anecdotally, weve been told that the active-adult segment is performing worse than the
market; apparently, the number of people who wish to live in a neighborhood without children
is less than the supply that has recently entered the market.
When we first looked at NVRs numbers in the second quarter of 2006, we were puzzled by a couple of
discrepancies: 1) cancellations were not as high as we would have expected, 2) revenues are not off as much
as their peers, and 3) gross margins were relatively high. All of these would speak to a better run company
than average (and thus destroy our short thesis). We will take you through why each of these figures is in fact
disguising a business that is currently falling off a cliff. First, cancellations have already started to rise vs. the
second quarter. In Q3, NVR saw cancellations of 27% vs. 13% in Q2, giving credence to anecdotal comments
that NVR had been aggressively discounting at close to prevent cancellations. Presumably, cancellations at
NVR will show incremental declines going forwards, bringing them in line with industry performance; either
that or gross margins will decrease significantly. Second, revenue growth and settlement (aka closing) growth
has exceeded their peers due to a large increase in the number of communities open. In the third quarter,
NVR had 609 communities open vs. 518 communities in the prior year, an increase of 18% yoy. An active
increase in community count into a slowing market is risky. While it temporarily props up results, it also may
make it more difficult for NVR to cut expenses as orders continue to slow. Third, gross margins are relatively
high largely due to NVRs mix - gross margins in the DC area average above 30%, well above that of the
average homebuilder. We have been told that NVR is simply a better operator than its peers, but this is simply
not true. Given Stanley Martin (a DC only builder) had gross margins of 30% in 2005 vs. 27% for NVR, one
might argue that NVRs margins should be even higher were it a better operator.
($ in thousands) 2004 2005

Q1 '06 Q2 '06 Q3 '06

LTM
Homebuilding:

Revenues 4,247,503 5,177,743

1,183,74
2 1,722,797 1,528,964

6,066,281
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

Other income 2,655 6,301

2,376 2,634 3,238

10,392
Cost of sales
(3,156,286
)
(3,738,030
)

(861,039
)
(1,278,183
)
(1,157,871
)

(4,477,855
)
Impairment

(26,000) (80,800)

(106,800)
SG&A (260,795) (345,525)

(114,006
) (119,551) (95,574)

(431,380)
Operating Income 833,077 1,100,489

211,073 301,697 197,957

1,060,638

Op Margin 19.6% 21.2%

17.8% 17.5% 12.9%

17.5%
Op. margin ex.
Imp.

19.0% 18.2%

19.2%

Interest expense (11,934) (13,809)

(5,527) (6,105) (3,141)

(19,747)
Homebuilding income 821,143 1,086,680

205,546 295,592 194,816

1,040,891
Mortgage banking
income 50,862 57,739

12,481 17,486 17,291

66,737
Income before taxes 872,005 1,144,419

218,027 313,078 212,107

1,107,628
Income tax expense (348,801) (446,860)

(85,467) (122,726) (82,774)

Tax rate 40.0% 39.0%

39.2% 39.2% 39.0%

Net income 523,204 697,559

132,560 190,352 129,333


Revenue growth 18.0% 21.9%

26.0% 37.0% 13.2%

Net income growth 24.6% 33.3%

12.4% 13.5% (31.7%)

Settlements (aka
closings) 12,749 13,787

2,986 4,297 3,854

15,553
New Orders 13,231 14,653

3,633 4,204 2,378

13,830
Backlog

8,957 8,864 7,388
New
Orders/Settlements 103.8% 106.3%

121.7% 97.8% 61.7%

90.2%
NVRs recent results show a disturbing trend. In addition to poorer margin performance and increasing write-
downs over the past couple of quarters, the companys new orders have fallen dramatically. Currently, they
are receiving 0.6 orders for every house they close, despite the increase in community counts yoy. New Order
trends continue to weaken despite lower average prices. NVR commented in the last quarter that Washington
DC prices were down 25% yoy while showing New Orders declines of 18% yoy. The company is clearly unable
to replace their backlog. If current trends continue, next year production could fall down 10K homes, well
below street expectations of approximately 12K homes delivered.

In addition, NVRs unique business model leads to several questions. For those less familiar with the company,
NVR exited bankruptcy in the early nineties. The management team switched NVR from the typical
developer/builder model to a pure builder business model. Therefore, rather than take any land development
risk, NVR does not take land onto the balance sheet until it has 1) a contract to sell the home and 2) the land
is fully developed and ready to build. NVR is the only large homebuilder whose land strategy is 100% options-
based. This model has led to greater asset turns, greater free cash flow generation, and greater returns on
equity during the bull times. However, there are several disadvantages to this model as well, arguably the
reason why the other homebuilders have chosen not to copy NVR. 1) The need to transfer development risk to
a partner results in higher average prices paid/lot as well as higher option deposits at risk.

Therefore, barring large land or land development price increases, NVR should produce sub-par margins in
comparison to their peers. 2) This is a difficult model to grow as it depends on the availability of partners. In
some markets, there simply may not be developers willing to enter into these contracts. 3) As the number of
builders in each market grows, it becomes more difficult for NVR to retain its market leading position, given
these supply constraints, without signing irrational agreements. Given the rapid increase in option contracts
signed in 2004 and 2005, it seems NVR started signing bad deals in an attempt to maintain share in its
markets.

As we mentioned in our summary, we liken NVRs business model to a call option on the metro DC/Baltimore
housing markets. As you can see below, the correlation between gross margin increase and home price
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

appreciation has been significant, with margins growing from 13% in 1994 to 28% in 2005. In comparison,
Tolls gross margins increased from 24% in 1994 to 32% in 2005. We believe the reason for this dramatic
increase is NVRs strategy of signing option contracts for finished lots. Option contracts are in essence a call
option, with the strike price being the price/lot and the expiration date, being equivalent to the date the lots
are purchased. The agreed price/lot is determined when the contract is signed, and a deposit is given to the
land owners (aka, the price of purchasing a call option). The deposit is forfeit in the event the land is not
purchased. Some price appreciation is built into the forward price/lot, generally in line with historical average
land price growth of 5-10% per year, as well as some inflationary cost of 2-5% for development. The time
frame for these options is dictated by the parties involved, but is generally around 3-5 years.

As a result, we believe NVRs price per lot was dramatically below the market for two reasons: 1) Land prices
increased on average 20% per year for the past five years and 2) Land development costs showed double
digit growth for the past five years. We believe the second reason to be why NVRs gross margin performance
has exceeded their peers. As opposed to absorbing the increasing land developments costs, we believe the
brunt of the unexpected cost was borne by their partners, who ended up selling finished lots to NVR at below
market prices. Given land development can be up to 50% of the cost of a lot, this gave NVR a substantial cost
benefit in comparison to peers - hence the relatively large increase in margins. NVR has controlled an average
6 years of supply since 2003. So it is possible that until recently, they were selling houses with finished lot
prices set in the late nineties. However, like all FIFO inventory accounting systems, eventually inflation does
start affecting a companys margins. Its just more delayed in the homebuilding sector than most industries.

yoy

NVR

Home Price

Gross

(OFHEO)

Margin
1994

(0.9%)

12.8%
1995

(0.4%)

13.6%
1996

1.2%

13.4%
1997

0.2%

13.7%
1998

3.1%

15.3%
1999

4.0%

17.1%
2000

8.7%

19.1%
2001

11.7%

21.8%
2002

11.9%

23.7%
2003

10.4%

24.7%
2004

19.6%

25.7%
2005

24.6%

27.8%

Potential Write-down

With pricing declines and high inventory levels in much of the US, homebuilders are walking away from deals
signed with bull market expectations. Those who were more aggressive in 2005 are facing larger write downs
than those who were more conservative. NVR appears to be in the former category. From 2003 to 2005, lots
controlled increased from 70,000 to 105,000 lots - an increase of 50% vs. an increase in closings of 14%.
The company has $437.5 mm of option deposits on its balance sheet as of Q3 06, 19.4% of assets, and
40.4% of shareholders equity. Including deposits held by consolidated joint ventures and letters of credit
outstanding of $17 mm, the total is $500.5 mm. (NVR is required to consolidate joint ventures where they are
deemed to be the main beneficiary under FIN 46. Hence the cash they have on deposit is greater than the
amount on their balance sheet.) In addition, in the 10-K, there is the following disclosure on page 63: "At
December 31, 2005, assuming that contractual development milestones are met, NVR is committed to placing
additional forfeitable deposits with land developers under existing lot option contracts of approximately $214
[mm]. This number is not updated quarterly, so the current amount is unclear. If you include the $214 mm
of additional deposits, there is a total of $714.5 mm in cash deposits at risk, over 70% of shareholders
equity.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

As mentioned earlier, we believe that most of these option contracts assume some average increase in land
prices to determine the final purchase price/lot. Given the recent performance of 20% growth per year, it is
likely that developers that signed contracts in 2004 and 2005 required more aggressive land price
appreciation assumptions. Given current expectations are for land prices to decline, or to rise in the low single
digits, many of these contracts have agreed purchase prices/lot well above market. And similar to any call
option that is significantly out of the money, the current value is likely close to zero. Therefore, if NVR is
unable to negotiate the purchase price down, all these contracts could be worthless. Assuming that all options
struck since 2003 are worthless, there will be another $150 mm of write-downs expected. If you assume that
at least 50% of the additional $214 mm of deposits that due is associated with worthless contracts that
increases our expected write-downs to $257 mm. Given NVR trades at 3.8x book, an asset write-down of
$257 mm could reduce the equity value by about $140/share, assuming that you keep the same egregious
multiple of book.

Looking at potential asset write-downs in another manner, according to NVRs 10-K, "The Company generally
seeks to maintain control over a supply of lots believed to be suitable to meet its sales objectives for the next
24 to 36 months. Given the current run rate of deliveries, NVR should have about 30,000 to 45,000 lots
under control. As options are not without carry costs, it makes little sense to keep up a large supply of land
that will not be used. Potentially, we could see NVR write off an additional 40,000 lots in the upcoming
quarters, eliminating an additional $200 mm of book value. Given NVR trades at 3.8x book, an asset write-
down of $200 mm could reduce the equity value by about $100/share, assuming that you keep the same
egregious multiple of book.
all figures in $/thousands 2003 2004 2005

Q1 '06 Q2 '06 Q3 '06
alance Sheet Data

Homebuilding inventory 523,773 588,540 793,975

1,022,31
0
1,018,02
9
1,011,13
9
Contract land deposits 284,432 384,959 549,160

552,962 575,637 437,519
Total assets
1,363,10
5
1,777,96
7
2,269,58
8

2,202,02
1
2,312,74
9
2,255,42
4
Notes and loans payable 257,859 213,803 463,141

281,654 371,388 371,203
Shareholders equity 494,868 834,995 677,162

773,894
1,000,20
7
1,086,51
6

Deposits as a % of assets 20.9% 21.7% 24.2%

25.1% 24.9% 19.4%

From text of filings

Lots Controlled 70,000 83,500 105,000

104,000 103,000 98,000
Est. Lots contr. (adj for
impair.) 70,000 83,500 105,000

104,000 98,000 84,500
$ deposits in cash 285,000 404,000 600,000

605,000 624,600 594,000
Avg Deposit/lot (actual
amount) 4,071 4,838 5,714

5,817 6,064 6,061
Closings (LTM closings for
quarterly data) 12,050 12,749 13,787

14,158 15,039 15,317
Years of Land (lots/LTM
closings) 5.81 6.55 7.62

7.35 6.85 6.40
- (est lots/LTM closings) 5.81 6.55 7.62

7.35 6.55 5.53

Growth in closing 6.0% 5.8% 8.1%

Growth in options

19.3% 25.7%
Note: we believe that the $ deposits in cash and the controlled lots in the text of the SEC filings does not
reflect the recent impairments of $106 mm ytd (hence the drastic increase in the difference between the
balance sheet and $ deposits in cash found in the notes).

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

anagement

The companys management team, while claiming to act in the shareholders best interests through extensive
share buybacks, has been taking home an extremely generous compensation packages, self-dealing, and
actively selling shares. The extensive share buybacks, in essence, resulted in the management taking control
of the company without paying a premium. The company is controlled by the management team through their
option holdings. There are 5.754 mm basic shares outstanding, and 2.796 mm options outstanding (strike at
$293). How many management teams do you know own 33% of the company strictly through free options? In
fact, if you could name one, we would love to know.
In terms of self-dealing, the following is found in the proxy. While the numbers were small, arent
shareholders already paying this team enough money? After all, shareholders gave the management the keys
to the kingdom in exchange for a couple of share buybacks.

From the Proxy - related party transactions

"During the year ended December 31, 2005, NVR entered into forward lot purchase agreements to purchase
finished building lots for a total purchase price of approximately $41,000,000 with Elm Street Development,
Inc., which is controlled by Mr. Moran. These transactions were approved by a majority of the independent
members of the Board of Directors, and the finished lots under these transactions are expected to be
purchased over the next three years at market prices. During 2005, NVR purchased 182 developed lots at
market prices from Elm Street for approximately $29,000,000.
NVR periodically leases, at market rates, an airplane owned by Mr. Schar for business-related company travel
when the use of the airplane lends itself to business travel efficiencies. NVRs independent directors annually
review these expenditures. During 2005, NVR paid approximately $323,000 for business-related use of the
airplane.

urrent Valuation ($ in mm except per share figures)
Stock Price $585.99

Diluted shares 7.0

Equity Value 4,083.7

Net Debt 132.6

Enterprise Value 4,216.3



$ x
2006E First Call P/E $88.79 6.6x
2007E First Call P/E $53.31 11.0x
Book Value/share $155.91 3.8x
LTM EBITDA $1,074 3.9x
LTM FCF/share $67.86 11.6%

While NVR may seem reasonably valued on earnings and EBITDA, we believe it is difficult to value
homebuilders on this basis given their earnings represent a match between current housing prices with land
prices from up to 5 or 10 years ago. In the DC area, land values represent at least 30% of the cost of the
home, if not more in certain areas. As mentioned earlier, we believe that contracts signed up to six years ago
are responsible for much of NVRs gross margin increase. However, without visibility on current contracted lot
prices, one cannot extrapolate past earnings performance as a meaningful indicator of future earnings power.
Therefore, valuing a homebuilder on earnings or EBITDA is flawed. To us, homebuilders are more like portfolio
managers, and should be valued on their ability to manage their capital. As most banks and asset managers
do not trade for more than 2x book, we believe this would be a fair place for NVR to trade. Given the $225
mm in asset write-down we expect, which would lower book value per share to $123, and a 2x multiple on
that, our target for NVR is approximately $250/share.

In response to the cheap P/E and earnings power of the business, we believe that if you adjust NVRs results
for performance more in line with the industry, and for gross margins more in line with a non-bull market
level, then you should have on-going normalized earnings at around $30/share. The current street
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

expectations for 2007 do not reflect the recent order trends at NVR, and therefore expect a closing rate close
to 20% above what their current order rate implies. At $250/share, you would trade at around 8x earnings, in
line with overall homebuilding multiples.

Catalysts

1) Additional asset write-down in the next couple of quarters.
2) Poor 2007 earnings performance
Risks
1) Share buyback propping up the stock
2) Substantial short interest
3) Quick turn in the housing market in the next year, especially in the Washington DC area.
4) Technically there is some takeout risk in the homebuilding market, but most of the homebuilders that are
mentioned as potentially acquirers are focused on purchasing assets below book value - in essence buying a
builder for its land bank. Given NVRs multiple and strategy, it seems an unlikely target.
Catalyst
1) Additional asset write-down in the next couple of quarters.
2) Poor 2007 earnings performance





NVR Inc.(NVR) - $590.00 on Oct 7, 2011 by golince

2011 2012
Price: $590.00 EarningsPerShare: $26.97 $34.98
Shares Outstanding (in M): 6 P/E: 21.9x 16.9x
Market Cap (in $M): 3,540 P/FCF: 0.0x 0.0x
Net Debt (in $M): -829 EBIT (in $M): $0 $0
TEV (in $M): 2,711 TEV/EBIT: 0.0x 0.0x
NVR is a homebuilder that has been written up twice before on VI: In 2006 as a short candidate
and in 2001 as a long. We believe that for investors with a reasonably long time horizon, NVR presently
offers compelling value as a long and asymmetric risk/reward.
We would encourage readers to check out cmn3d's detailed piece on US housing which lays out a pretty good
argument for a housing recovery.
Ok, so now for the case on NVR. To start with, let us say from the get-go that NVR is not the juiciest way to
play a recovery in US housing as there are many other names out there with greater upside. However, we
believe that NVR offers a very safe way to play this recovery while mitigating the chance of permanent
impairment of capital. As evidence of the safety, we point out that NVR was FCF-negative during only 1
quarter of the most recent recession, a testament to the defensibility of its business model. The company has
over $800mm of net cash on balance sheet. NVR currently trades at ~2x book, which may sounds high (it is
much higher than all other homebuilders) but: A) NVR's long-term average multiple is about 4.3x, and B)
NVR's unique business model and huge ROIC relative to other builders warrants a much higher book multiple.
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

ackground on NVR
NVR builds and sells homes (mostly single-family detached) in 22 MSAs within 12 states in the eastern US.
NVR also has a mortgage banking and title services company which primarily services its homebuilding
operation. NVR is among the 5 largest homebuilders in the US.
NVR emerged from bankruptcy in 1992. The BK was the result of an overleveraged balance sheet that
deteriorated in the housing recession of the late 1980s. Prior to BK, NVR was a full scale land developer,
manufactured housing materials, had a more extensive finance arm, and was geographically diversified across
the country. Post-BK, NVR refocused its business on the Mid Atlantic and Rust Belt, shedding the housing
materials and most of the finance business, and ceasing to develop land and build on spec. In 1997, NVR
bought Fox Ridge Homes for $20mm, giving it entry to the Nashville market. In 2005, NVR bought Marc
Homebuilders for $8mm, in the Columbia SC market.
NVR is run by CEO Paul Saville, who has been with Ryan Homes (precursor to NVR) since 1981 and has been
CEO for about 15 years. He owns 2.5% of the company, largely the result of LT incentive comp. Chairman
Dwight Schar was CEO before Saville, having joined Ryan Homes in 1969. He owns 1% of the co.
arkets
65% of NVR's gross profit comes from the Mid-Atlantic (Wash DC, Baltimore, etc). 16% is Mid-East (Cinci,
Cleveland, Pittsburgh), 11% is South East (Charlotte, Nashville) and 8% is North East (Philly).
What is important is that NVR's markets did not get nearly as overbuilt as some others in the country during
the RE bubble. Peak-to-peak unit growth overall from 1986 to 2005 was only 0.3% CAGR. However, whereas
in some very overbuilt markets there has been very little new construction in the past 5 years, in NVR's
markets construction has continued at a slightly higher pace. The result is that current months of new home
inventory is about 6 months for both NVR and for the country as a whole.
NVR has been a consistent market share gainer in its footprint. Estimated current mkt share is about 18%,
about a double in share in the last 5 years (downturn). Prior to the downturn, NVR gained on average 60 bps
of share per year since emerging from BK in the early 90s.
usiness odel
NVR has a unique business model within the homebuilders that is predicated on two main points: 1) nearly
100% of land controlled is optioned rather than purchased on B/S, and 2) NVR is geographically dense (i.e.
local economies of scale). The result of these aspects are that due to #1, NVR operates much more capital-
light than other builders (as evidenced by its 50%+ after-tax ROIC through the cycle) and #2 allows for NVR
to be far more efficient and low-cost in the markets in which it operates.
NVR considers itself more of an assembly line manufacturer than a custom home builder (per mgmt., "We like
to think of ourselves as the In-N-Out Burger of Homebuilders".) NVR has 6 manufacturing and distribution
facilities where they pre-assemble exterior and interior walls, stairs, railings, etc. Prefab packages are
delivered to building sites where they can be assembled quickly. From day 1 of laying foundation, NVR can
usually deliver a home in <90 days, often 60-70 (compared to ~100-120+ industry avg).
Consistent with its focus on efficiency, NVR offers fewer home models (4-5) per community and fewer
customization options per model. If <20% of buyers select a given option, it is kicked out of the option pool
for future communities. Importantly, NVR is NOT a spec builder; rather homes are constructed only after the
receipt of a signed contract and deposit from a buyer.
NVR has an in-house mortgage banking business designed to underwrite loans for buyers of their homes.
Loans are underwritten per the standards of the eventual loan owner (Wells Fargo, BofA, etc) and are held on
B/S for <30 days on average.
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

NVR rarely buys land for development. Instead, NVR enters into options on land, paying 3-10% of aggregate
purchase price as a premium. It can walk away at any time. It takes down finished lots on an as-needed basis
as homes are contracted to be sold.
Mgmt. is compensated with a focus on shareholder value creation and a LT outlook. Most comp comes in RSUs
and Options that vest over 4-5 years. Site managers are incentivized based on delivering homes quickly.
Cash is primarily used to buy back stock. NVR has bought back about 2/3 of co since 1994.

Investment %hesis in a Nutshell
NVR is a high quality, best-in-class homebuilder with a proven business model that was resilient to the worst
residential real estate market in the last 80 years (profitable every quarter but 1). Current consensus
sentiment on residential real estate is extremely bearish, presenting an intriguing entry point to own a high
quality mean-reverter at a reasonable price.
Our normal year assumptions call for NVR to deliver about 17k homes, which implies flat market growth
average-to-average from the last cycle to the next (recall that NVR's markets did NOT get overbuilt that much
during the last cycle) and 13.5% market share for NVR (versus 18% today). We assume that NVR ASPs are
flat for the next 2 years and then grow with inflation thereafter. Our model also calls for an Operating Margin
about 50 basis points below NVR's long-term average despite the fact that they are more efficient operators
today. We also assume that this "normal" year does not occur until 2016 (10 years after the beginning of the
downturn). Thus, we view this case as a reasonably conservative case.
Assuming a recovery to this conservative "normal" in 2016 and prudent capital allocation (as NVR's history
suggest should be the case), we should generate a high teens IRR on this investment from the current level.
We get an option on a quicker recovery and/or a higher actual normal year, both of which are totally
reasonable (and arguably more likely) outcomes. Downside is protected by the quality of the business, its
proven resiliency during downturns, and the entry multiple.
--
DIS&SSION
# Author Date Subject Private
17 Golince 10/17/11 06:44 AM
RE:
cmn3d
Sorry, typo: search for member name cnm3d
16 jon64 10/17/11 04:21 AM cmn3d

I tried to find the real estate data you suggest by member "cmn3d" but couldn't seem to locate it... any
suggestions? Is there a ticker to go with it?
15 September 10/14/11 03:31 PM
RE:
HomeFed
Yes. It's an interesting collection of Cali real estate managed by Leucadia. For example, they have a grape
farm that is carried on the books for ~$5m, earned $1m in net income last year, and is for sale for $25m. All
the land was acquired super cheap and the company is debt free, cash rich. They could probably move the
raw land above book and they have a bunch of lots at a completed development that they are in no rush to
sell, but could get well above book value based on historical sales. They claim to have interest in their lots at
a completed development but they are waiting for better prices. I think over 12-18 months it could get
liquidated for ~$25/share, but they have a bulletproof balance sheet so there is no rush.

They bought a big parcel in January out of bankruptcy for $11m. People were talking about a several hundred
million dollar development on this parcel in 2003-2005, took on debt, got arrogant, and went bankrupt as the
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

# Author Date Subject Private
bubble burst and environmental regulations tripped them up. Its abstractly very undervalued since Leucadia
have a great track record in real estate and I think that SoCal is long term sound based on the confluence of
climate, demographics, and geographic barriers. SoCal was a good idea taken too far and now its cheap.
Nothing exciting will happen for quite a while so it doesn't attract much interest. I have a small position, but
we're talking 3 years minimum for stuff to play out and people to get excited about the business again.
14 oliver1216 10/14/11 01:05 PM RE: lots

harlie479,

You make some interesting points. I'll give you my thoughts in the order you presented them:
fixation - it's not that I have a fixation on the options, it's that this is by far the most common reason buyers
of NVR seem to believe that NVR can achieve for many, many years something like double the ROE of other
homebuilders. Without some advantage conveyed by the "asset-light" model, it becomes very hard to make
the case that ROE's will be excessively high and therefore that NVR should be valued at well more than twice
book value.

1. My understanding is that a large majority of the additional options since 2008 are ones that were previously
written down and subsequently repriced and put back on the books.

2. You only speak of one side of the equation. Land prices and house prices have also fallen. NVR's ROE has
dropped precipitously which tells me that the current options are much less valuable than they used to be.

3. 30%! that would be amazing. But ROE is about 10%. Are you subtracting out net cash? If so, then for the
LTM it's a 19% return on non-cash assets. Pretty good. But 0% return on cash - why would anyone pay 2.5x
book value for cash? Let's say they're the Apple of homebuilding and somehow get returns on non-cash assets
to 30% (about triple the typical homebuilder). If they compound their non-cash assets at that rate for the
next 5 years and then you add the current net cash you roughly get to today's value. So to be a buyer today
and get a decent return, you have to think they do well north of 30%. That's a value stock? Also, if
opportunities are available to buy these high return options, why do they have so much cash?

4. Definitely true. Homebuilders and land developers do this all the time. NVR competes with lots of other
companies for land deals and options deals. That's my point. You have to believe NVR's ROE can be more than
double other large homebuilders' for many, many years. During the huge bubble and bust the option model
was clearly better, but why would it convey any advantage when the environment isn't so extreme? NVR
makes a tradeoff of not using their balance sheet but paying higher prices for land. Under normal
circumstances, the result gets you to the same returns as the other builders which is why other builders do
some option buying and some land purchasing - it depends on the price which one provides better returns.
Isn't it a disadvantage if you can only use options even if outright purchases are cheaper? I'd rather have the
flexibility to do whichever would generate the highest risk-adjusted returns.

5. They controlled over 100,000 lots at one point, a lot fewer presently. In the normal course many of those
options would have expired, but NVR got a nice windfall from being able to reprice some options during the
depths of the bust. I don't think they can do that anymore but in the interim I believe they are still living off of
that windfall. I suspect (only a suspicion) that they will have a very difficult time replicating their option pool
going forward. My guess is that this means NVR's ROE will look like every other homebuilders'.
13 charlie479 10/13/11 10:36 PM lots

oliver1216,
I think you're fixating on the land options and missing the main point, but let me try to satisfy the fixation
anyway. The massage afterwards is free but gratuities are appreciated.

1. They are not having problems obtaining lots through options. Since the bubble burst, they have been able
to steadily increase the number of lots controlled. They had 44,983 lots at 12/31/08, 46,337 at 12/31/09, and
52,310 at 12/31/10. Developers are apparently still willing to enter into these non-recourse option
agreements.

2. The price of these options is not going up. They're going down. This is not surprising because when the
price of the underlying drifts down or stagnates like land has recently, call options tend to get cheaper. This is
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

# Author Date Subject Private
good for NVR as a buyer. In 2007, NVR controlled 67,600 lots with a total notional of $6.9 billion with $405
million of deposits (aka "premium"). This works out to $6,000 per lot or a premium of 5.9%. The following
year it fell to $4,500 and 4.9%. In 2010 it was still lower at $3,600 and 3.9%.

3. They're able to generate a decent return at current option prices. 30% pretax return on tangible capital is
decent, albeit not stellar (though I think that has less to do with land options than lack of scale volume).

4. Many other builders use options to control some of their lots (but they also control other lots in their
inventory by owning land too). These limited-recourse fixed-price purchase agreements that we're calling
options are not an unusual arrangement. Land options are not some tricky thing that NVR invented that will
disappear because developers 'have caught on'.

5. These option agreements are not as long in duration as you think. The 2002 inventory of optioned lots
would basically all be exercised or expired by now. From 2002 to 2010 NVR has sold 108,419 homes. It's been
awhile since I've owned or looked closely at NVR (except now - thanks for the memories, VIC!) but I do not
remember seeing a secret stash of optioned lots at HQ that would have been big enough to deliver that many
homes. Also, are we even sure that land options struck at 2002 prices would be considered "really, really
cheap" today?

One could construct a legitimate bear case for NVR here but I think basing that case on the land options would
be using a weak foundation, in my opinion.

12 oliver1216 10/13/11 05:47 PM Valuation

I second Nails4's last question. I think it's likely to be true that they have a pile of old and/or repriced options
that date back a number of years and I question whether those options can be economically replaced. I would
think a buyer of this stock would need to know the answer.
11 september 10/13/11 04:26 PM Valuation

HomeFed (HOFD) is a bizarre Leucadia controlled land development company in SoCal that is publicly traded.
They have sold options on land recently. It's going to depend on the developer. They have no debt and buy
land very cheap so they can be flexible. From their 10-K:

"As of February 9, 2010, the Company has entered into an agreement with a homebuilder that has not closed
to sell 32 single family lots for aggregate cash proceeds of $7,000,000, pursuant to which it had received a
non-refundable option payment of $650,000. The option payment is non-refundable if the Company fulfills its
obligations under the agreement, and will be applied to reduce the amount due from the purchaser at closing.
Although this agreement is binding on the purchaser, should the Company fulfill its obligations under the
agreement within the specified timeframes and the purchaser decides not to close, the Companys recourse
will be primarily limited to retaining the option payment."

I think in an uncertain homebuilding environment, options become more attractive to both parties. A
developer selling options on a lot to a homebuilder has the benefit of some income while giving the
homebuilder some flexibility in selling homes on the lots. A developer doesn't have to sell an option unless the
strike price is attractive. It's to the detriment of a developer if they offload land and put a builder in a position
where they have to offload homes they built. It would put downward pressure on future land and home sales
in surrounding lots since real estate transactions love comps.
10 oliver1216 10/13/11 03:58 PM
RE: RE:
RE: RE:
RE: RE:
RE: RE:
Valuation

Utah, you're making my case for me. Why would anyone sell a call option? Simple - to maximize their profit.
The more successful the seller of those options, the worse off the buyer is (in this case NVR). To expect a
buyer to continually be able to make outsize profits buying options is to continually expect the sellers to
misprice those options too low. I think that's a lot to count on in order for an investment to work out
satisfactorily.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

# Author Date Subject Private
In any burgeoning bubble we will no doubt find, in retrospect, that options were priced too low as prices
increased rapidly. But now that this bubble has burst what's the case for expecting NVR to be able to continue
to find mispriced options (i.e. find foolish developers) indefinitely?

And why is everyone just assuming favorable option deals exist? Has anyone actually looked at any land
option deals and examined the pricing terms? I'm surprised to find on a board focused on value investing so
many people who are unconcerned about PRICE. The price of the options makes all the difference. Are these
options cheap now? After the bubble are they deemed too risky by the sellers after NVR and others walked
away from so many options? Are they available at all? If they are available why is NVR sitting on such a large
pile of cash which earns no return?
9 oliver1216 10/13/11 12:13 PM
RE: RE:
RE: RE:
RE: RE:
Valuation

False analogies notwithstanding, the act of homebuilding in its entirely entails purchasing land, developing the
land and then selling the land. The highly experienced integrated homebuilders have over many, many years
generated decent but not great investment returns on this entire process as a whole (very low double digits).
You could, in theory, bifurcate the process into high ROI and low ROI activities. This means that if NVR's ROI
is higher than the entire process, then the land developers' ROI is lower. But shouldn't the party taking the
higher risk (i.e. the land developer) get a higher return? If they're not getting a higher return, then it's back
to my original assertion - NVR's theoretical future high ROE relies on the foolishness of developers. Can this
be counted on in the future or was it an artifact of the bubble? Isn't it possible that post-bubble risk aversion
could increase the cost of options so that they are economically detrimental compared to outright land
purchases? Has anyone looked into this or are the owners of NVR comfortable blithely assuming that options
are always better, no matter the price?

I would also add that even a foolish developer would at least target a decent return on capital. If they priced
their investment to have a 10% cash on cash return (is that enough to justify the risk?) do you expect NVR to
get a 20% return on its investment on top of that? 1 + 1 = 3? Without dumb developers, I just don't see how
it adds up. (note: I'm not dismissing the claim that NVR is a particularly good builder, I just can't see how that
can get them from a 10% ROE to a 20% ROE over a whole lot of years. A couple hundred basis points maybe.
There are plenty of companies that know how to build homes cheaply).
8 chuck307 10/12/11 10:15 PM

Valuation
l dor'l lr|r| you lrared your argurerl la|r|y. Ever |l lre |ard ous|ress Were decerl |l doesr'l rear |l's as good a ous|ress as
NvR's ou||d|rg ous|ress. Trus, |l NvR car use opl|ors or a va|ue reulra| oas|s vs. oWr|rg lre |ard, |l lre opl|ors slralegy
a||oWs |l lo d|recl a grealer porl|or ol |ls resources loWard ou||d|rg ard rave |ess cap|la| l|ed up |r a |oWer relurr|rg |ard
ous|ress, |l's a good lr|rg lo do. Aclua||y, deperd|rg or lre relurr d|screparcy oelWeer |ard ard ou||d|rg, you car argue |l's
rol a oad dec|s|or lo use opl|ors ever |l lrey rave Worse ecoror|cs lrar oWred |ard (or a slarda|ore oas|s), |l oy us|rg
opl|ors lrey car d|recl a grealer porl|or ol cap|la| loWard ou||d|rg.
Trere |s ro ecoror|c |aW lral says a|| ecoror|c acl|v|l|es pay a s|r||ar relurr.
7 oliver1216 10/12/11 07:07 PM Valuation

The 3 replies all agree: it's beneficial NOT to have land on your books. Perhaps, but doesn't it depend on the
price? At a sufficiently high option price, buying the land outright would be the better deal. How does the
current price of options compare to what they were a few years ago? No one seems to want to answer that
question but instead assume options are ALWAYS better. That can't be true, it depends on the price.
NVR doesn't like to hold land but SOMEONE has to hold the land don't they? It's the land developers and
either they're getting a terrible deal from which NVR benefits or they are adequately charging NVR the cost
associated with tying up all that capital. If it's the latter, then there is no benefit to the option strategy. And
why wouldn't developers weigh the total cost of a sale of all the land versus the risks and costs of capital
associated with selling options and choose the higher value? Unless we think they are fools willing to bear all
of the costs and risks associated with holding land and not adequately charge for it.

Now that bubble lending is over and developers have to put real money into their investments, I think there's
a serious danger that NVR can no longer get option deals that provide the outsize returns on investment
needed to grow the book value sufficiently to provide returns for investors. I think this is borne out in their
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

# Author Date Subject Private
mundane ROEs generated since the bubble burst (average ROE of only about 11% over the past 3 years). I
don't see how they can get ROEs back to a level sufficient to justify a 2.4x P/B (~20% for nearly 10 years, in
my opinion) unless land developers decline to charge NVR the cost of holding land. Regardless, in order for
this to be a value stock one has to be CERTAIN that NVR can do just that. You sure?
6 charlie479 10/12/11 02:46 PM Valuation

oliver1216,
I'll echo what september and utah1009 have said. NVR generates a good return on book value because
homebuilding (without land development) is itself a decent-return activity; NVR wasn't getting those high
returns because they were screwing the land developers. Note that NVR is still generating 30% return on
tangible capital in one of the worst homebuilding environments in history, when it's now pretty unlikely
anyone is capturing any supposed option-related excess returns.

If you took away the option agreements, and restructured the industry so that land owners sold to
homebuilders on a just-in-time basis (as homes were sold), I think you'd still see the homebuilding operations
with good ROCs and the land developers with poor ROCs (but maybe decent ROE after leverage). They're two
different businesses with different return characteristics. Options just happen to be the way NVR separates
itself from the land business.

There are plenty of industries where high ROC lines of business persist alongside low ROC lines. Hotel
management companies work alongside property owners, shipping/logistics companies work with trucking
companies, seismic operators work with ship owners, etc. Why do all of the people in the low return
businesses keep doing this and not get into high return businesses? It could be the same reason that investors
keep buying low return businesses: hope springs eternal for the turnaround always around the corner.
5 september 10/12/11 01:37 PM Valuation

In terms of the balance sheet, all of the assets/working capital are on someone else's balance sheet. NVR had
property write downs of ~$500m since the bubble burst. That's peanuts next to Pulte Home's >$5bn in
property write downs. Theoretically, all the land that NVR can/will develop exists, a developer can only extract
so much of the final price, and NVR vis-a-vis other builders can pay more for land since their costs are lower.
It's clearly an advantage in not having the land on the books.

What I find curious is that in terms of low cost commodity producers, NVR looks more process oriented
(Southwest) than systemic (GEICO) in its competitive advantage. Plenty of low cost airlines pop up all the
time, whereas Allstate is getting murdered in car insurance and GEICO/PGR have never been doing better.
The benefits are so clear of the NVR approach - high share price, high compensation, happy shareholders,
happy management - all the agents are aligned to push for this at other builders. I don't understand how
competition hasn't emerged by copying the process. Do you know of any homebuilders trying the NVR
approach or are there any rumblings of it being attempted in the near future? They started on their current
path when they were in distress and had a reality check. Is anyone else having this epiphany in the space?
4 oliver1216 10/12/11 10:48 AM Valuation

The shares are trading at just under 2.5x tangible book value. If one assumes cash is worth cash the situation
is much worse - the market is valuing NVR's non-cash net assets in excess of 4x book value. If this is a value
stock at the current price, the implication is that NVR must generate a very high return on its book value for
many, many years. The assertion as to why this is possible rests on the notion that NVR's option strategy
enables it to generate excessive returns and is sustainable. The corollary, however, is that if NVR is making
outsized returns on its options then the seller of those options is making excessively poor returns. Who are
these people and why do they keep doing this?

During the bubble NVR was able to generate very high returns (just as one would have buying options on
internet stocks in the prior bubble) but have generated mundane returns since. During the bubble, banks
would lend 95% of the cost of buying and developing land with only a 5% premium paid by NVR on an option
to buy the developed parcels. This allowed developers, using no money, to spring up like flowers after a rain.
NVR, at a low cost, put numerous developers in business and was able to secure 10s of thousands of lots,
many of which they subsequently walked away from. But banks certainly won't do that anymore and
developers actually have to have money in their investments now. A land developer has a choice: sell the
whole property outright, sell individual plots, sell homes like a homebuilder or sell options to a homebuilder.
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

# Author Date Subject Private
Assuming developers who actually have skin in the game and know the market reasonably well are reasonable
investors, how can we be comfortable that NVR can make the requisite excessive returns for an extended
period of time necessary for shareholders to make even a moderate return? And how can investors expect
high levels of return on investment if the company is spending a large amount of cash repurchasing shares at
a high multiple to book value (which serves to lower book value per share)?
3 charlie479 10/07/11 11:22 PM Nails4

Is there any way to quantify these savings on a per unit basis?

That's an interesting question. One possible approach: take cost of sales (excluding land impairments) and
divide by the number of delivered homes in a year to get their average cost per home. If you call the company
and can get them to share with you the average square footage per home sold (or maybe estimate from the
blueprints of their most popular models), you can get an approximate cost per square foot. If you did this with
several public builders, you might be able to get some idea of the difference in efficiency, although you'd want
to choose builders operating in similar geographic areas and selling comparable homes. I'd be interested in
seeing a recent comparison. Who wants to volunteer to do this? Not it.

If you don't want to go through that much effort and just want to get a rough approximation, you might be OK
assuming that builders on average aren't able to charge a price premium for their product. If two builders
build the same home, homebuyers aren't going to pay extra dollars per square foot (on average) for a NVR
home vs. a Ryland home or vice versa. If you make that assumption, then you're probably fine just looking at
Cost of Sales (excl impairements) as a % of Sales. I looked quickly just now at a few of the builders and saw
differences of as much as 700 bps, which is not that small on a ~$300k house.
2 charlie479 10/07/11 10:39 PM
RE:
Expenses
utah1009,

I think part of the reason you do not see a decline in G&A vs 2004 is because they did not adopt SFAS 123R
(Accounting for Stock-based Compensation) until 2006. So, the 2004 number you are looking at has no stock
comp expense whereas the TTM figure includes $64 mil of stock comp expense. These guys have also been
pretty liberal with the options gravy.
1 golince 10/07/11 02:28 PM
RE:
Some Qs
Nails,
It's a fair question and one that we have spent some time thinking about. During normal times, the answer is
that NVR has a significant cost advantage over competitors which allows it to pass along some of the value to
the buyer. Hence the buyer gets a better home for a cheaper price when buying from NVR.
The cost advantages have 2 primary sources. First is the local economies of scale that NVR achieves, which
allows them to leverage the fairly significant on-site and market-related SG&A that homebuilding entails.
Second is NVR's assembly-line like process.

These advantages while meaningful are not enormous though. This is why NVR has been a steady share
gainer during normal years (they average about 60 bps of share gains per year).

In addition, NVR simply executes very well. They seem to get more efficient each year, and as they grow they
get additional purchasing advantages on raw materials, etc. This allows them to maintain margins.
The huge share gains we've seen recently (NVR has double share gains in the last 5 years) have a different
explanation: their peers which were more poorly capitalized (debt and/or on-balance sheet land) exited the
business. This is why our normalized case assumes that NVR's current 18% market share declines to 13.5%
over time - some of these peers at least will come back into the business.

Hope that helps.

!!
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

AS JF DATE: 2001-03-07 NVR 2000 10-K


UNITED STATES
SECURITIES AND EXCHANGE CJMMISSIJN
Washington, D.C. 20549

FJRM 10-K
X, ANNUAL REPJRT PURSUANT TJ SECTIJN 13 JR 15(d) JF THE SECURITIES
EXCHANGE ACT JF 1934
For the fiscal year ended December 31, 2000
JR

TRANSITIJN REPJRT PURSUANT TJ SECTIJN 13 JR 15(d) JF THE SECURITIES
EXCHANGE ACT JF 1934 (NJ FEE REQUIRED)
For the transition period from ____ to _______________

Commission file number 1-12378

NVR, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Virginia 54-1394360
- --------------------------------------------- -----------------------
(State or other jurisdiction of incorporation (IRS employer
or organization) identification number)

7601 Lewinsville Road, Suite 300
McLean, Virginia 22102
(703) 761-2000
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
____________

Securities registered pursuant to Section 12(b) of the Act:
-----------------------------------------------------------

Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common stock, par value American Stock Exchange
$0.01 per share

Securities registered pursuant to Section 12(g) of the Act: None
-----------------------------------------------------------

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 X No__
---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K._,

As of February 22, 2001 the aggregate market value of the voting stock held by
non-affiliates of NVR, Inc. based on the closing price reported on the American
Stock Exchange for the Common Stock of NVR, Inc. on such date was approximately
$986.5 million. As of February 22, 2001 there were 8,366,862 total shares of
common stock outstanding.


DJCUMENTS INCJRPJRATED BY REFERENCE
Portions of the Proxy Statement of NVR, Inc. to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

1934 on or prior to April 30, 2001 are incorporated by reference into Part III
of this report.

Page 1 of 123 pages
The Exhibit Index begins on page 17.

1
<PAGE

INDEX

<TABLE
<CAPTIJN
PART I Page
- ------ ----
<S <C
Item 1. Business......................................................................... 3
Item 2. Properties....................................................................... 6
Item 3. Legal Proceedings................................................................ 6
Item 4. Submission of Matters to a Vote of Security Holders.............................. 7
Executive Jfficers of the Registrant............................................. 7
PART II
- -------

Item 5. Market for Registrants' Common Equity and Related Shareholder Matters............ 7
Item 6. Selected Financial Data.......................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Jperations............................................................ 8
Item 7A. Quantitative and Qualitative Disclosure About Market Risk........................ 13
Item 8. Financial Statements and Supplementary Data...................................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................. 16

PART III
- --------

Item 10. Directors and Executive Jfficers of the Registrant............................... 16
Item 11. Executive Compensation........................................................... 16
Item 12. Security Jwnership of Certain Beneficial Jwners and Management................... 16
Item 13. Certain Relationships and Related Transactions................................... 16

PART IV
- -------

Item 14. Exhibits and Reports on Form 8-K................................................. 17
<PAGE

PART I
------
Item 1. Business
- ------- --------

General

NVR, Inc. ("NVR") was formed in 1980 as NVHomes, Inc. NVR operates in two
business segments: 1) the construction and marketing of homes and 2) mortgage
banking. During 2000, NVR conducted its homebuilding activities both directly
and indirectly through its wholly owned subsidiary, Fox Ridge Homes, Inc. Jn
December 31, 2000, NVR merged Fox Ridge Homes, Inc. into NVR. NVR now conducts
all homebuilding activity directly. NVR conducts its mortgage banking
operations primarily through another wholly owned subsidiary, NVR Mortgage
Finance, Inc. ("NVR Finance"). Unless the context otherwise requires,
references to "NVR" include its subsidiaries.

NVR is one of the largest homebuilders in the United States and in the
Washington, D.C. and Baltimore, Maryland metropolitan areas. NVR derived an
aggregate of approximately 61% and 62% of its 2000 and 1999 homebuilding
revenues, respectively, from the Washington, D.C. and Baltimore, Maryland
metropolitan areas. NVR's homebuilding operations construct and sell single-
family detached homes, townhomes and condominium buildings under three
tradenames: Ryan Homes, NVHomes and Fox Ridge Homes. The Ryan Homes product is
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

built in eighteen metropolitan areas located in Maryland, Virginia,
Pennsylvania, New York, North Carolina, South Carolina, Jhio, New Jersey,
Delaware and Tennessee. The Fox Ridge Homes product is built in the Nashville,
Tennessee metropolitan area. The Ryan Homes' and Fox Ridge Homes' products are
moderately priced and marketed primarily towards first-time and first time move-
up buyers. The NVHomes product is built largely in the Washington, D.C.
metropolitan area, and is marketed primarily to move-up and upscale buyers. In
2000, the average price of a unit settled by NVR was approximately $224,600.

NVR obtains land for homebuilding by acquiring control over finished
building lots through option contracts with land developers that require
forfeitable deposits. This lot acquisition strategy reduces the financial
requirements and risks associated with direct land ownership and land
development. NVR generally seeks to maintain control over an inventory of lots
believed to be suitable for the next 18 to 24 months of projected home sales
volumes in the various communities in which it operates.

In addition to building and selling homes, NVR provides a number of
mortgage-related services through its regional mortgage banking operations,
which operate in 10 states. During the first quarter of 2000, NVR formulated a
detailed plan to align its mortgage banking operations to exclusively serve the
Company's homebuilding customers. The plan specifically entailed the closure of
all of the Company's retail operations, including all of the retail branches
acquired from the acquisition of First Republic Mortgage Corporation ("First
Republic") in March 1999. This action is consistent with the Company's decision
in December 1999 to exit the wholesale mortgage origination business.

NVR's mortgage banking business generates revenues primarily from origination
fees, gains on sales of loans, title fees, and sales of servicing rights. In
2000, NVR's mortgage banking business closed approximately 11,600 loans with an
aggregate principal amount of approximately $1.7 billion. NVR's homebuilding
customers accounted for 71% of the aggregate dollar amount of loans closed in
2000. Based on NVR's mortgage banking segment's restructuring described above,
substantially all of the mortgage banking segment's ongoing loan closings will
be for NVR's homebuilding customers. NVR's mortgage banking business sells all
of the mortgage loans it closes into the secondary markets, and also sells
substantially all of its originated mortgage servicing rights on a flow basis.
The servicing portfolio balance at December 31, 2000 was approximately $275
million in principal amounts of loans serviced.

Segment information for NVR's homebuilding and mortgage banking businesses
is included in note 2 to NVR's consolidated financial statements.

3
<PAGE

Homebuilding

Products

NVR offers single-family detached homes, townhomes, and condominium
buildings with many different basic home designs. These home designs have a
variety of elevations and numerous other options. Homes built by NVR combine
traditional or colonial exterior designs with contemporary interior designs and
amenities. NVR's homes range from approximately 985 to 5,400 square feet, with
two to five bedrooms, and are priced from approximately $76,000 to $1,200,000.

Markets

The following table summarizes settlements and contracts for sales of homes
for each of the last three years by region:

<TABLE
<CAPTIJN
Contracts for Sale
Settlements (Net of Cancellations)
Year Ended December 31, Year Ended December 31,
-------------------------- -----------------------
Region 2000 1999 1998 2000 1999 1998
- ------ ------ ----- ----- ------ ----- -----
<S <C <C <C <C <C
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Washington/Baltimore 5,208 5,073 4,358 5,305 5,215 5,165
Jther (1) 4,847 4,243 3,264 4,963 4,463 3,835
------ ----- ----- ------ ----- -----
Total 10,055 9,316 7,622 10,268 9,678 9,000
====== ===== ===== ====== ===== =====
</TABLE

(1) Includes Pennsylvania, New York, North Carolina, South Carolina, Jhio, New
Jersey, Tennessee, Delaware and Richmond, Virginia.

Backlog

Backlog units and dollars were 5,148 and $1.3 billion respectively, at
December 31, 2000 compared to backlog units of 4,935 and dollars of $1.1 billion
at December 31, 1999.

Construction

Independent subcontractors under fixed-price contracts perform construction
work on NVR's homes. The subcontractors' work is performed under the
supervision of NVR employees who monitor quality control. NVR uses many
independent subcontractors in its various markets and is not dependent on any
single subcontractor nor on a small number of subcontractors.

Sales and Marketing

NVR's preferred marketing method is for customers to visit a furnished
model home featuring many built-in options and a landscaped lot. The garages of
these model homes are usually converted into temporary sales centers where
alternative facades and floor plans are displayed and designs for other models
are available for review. Sales representatives are compensated predominantly
on a commission basis.

Regulation

NVR and its subcontractors must comply with various federal, state and
local zoning, building, environmental, advertising and consumer credit statutes,
rules and regulations, as well as other regulations and requirements in
connection with its construction and sales activities. All of these regulations
have increased the cost required to market NVR's products. Counties and cities
in which NVR builds homes have at times declared moratoriums on the issuance of
building permits and imposed other restrictions in the areas in which sewage
treatment facilities and other public facilities do not reach minimum standards.
To date, restrictive zoning laws and the imposition of moratoriums have not had
a material adverse effect on NVR's construction activities. However, there is
no assurance that such restrictions will not adversely affect NVR in the future.

4
<PAGE

Competition, Market Factors and Seasonality

The housing industry is highly competitive. NVR competes with numerous
homebuilders of varying size, ranging from local to national in scope, some of
whom have greater financial resources than NVR. NVR also faces competition from
the home resale market. NVR's homebuilding operations compete primarily on the
basis of price, location, design, quality, service and reputation. NVR's
homebuilding operations historically have been one of the market leaders in each
of the markets where NVR operates.

The housing industry is cyclical and is affected by consumer confidence
levels, prevailing economic conditions and interest rates. Jther factors that
affect the housing industry and the demand for new homes include the
availability and increases in the cost of land, labor and materials, changes in
consumer preferences, demographic trends and the availability of mortgage
finance programs.

The results of NVR's homebuilding operations generally reflect the
seasonality of the housing market in the Middle Atlantic region of the United
States. NVR historically has entered into more sales contracts during the first
and second quarters.
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page


NVR is dependent upon building material suppliers for a continuous flow of
raw materials. Whenever possible, NVR utilizes standard products available from
multiple sources. Such raw materials have been generally available in adequate
supply.

Mortgage Banking

NVR provides a number of mortgage related services to its homebuilding
customers and to other customers through its mortgage banking operations. The
mortgage banking operations of NVR also include separate companies that broker
title insurance and perform title searches in connection with mortgage loan
closings for which they receive commissions and fees.

NVR's mortgage banking business sells all of the mortgage loans it closes
to investors in the secondary markets, rather than holding them for investment.
NVR's wholly owned subsidiary, NVR Finance, is an approved seller/servicer for
FNMA, GNMA, FHLMC, VA and FHA mortgage loans. NVR's mortgage banking operations
also sell substantially all originated mortgage servicing rights on a flow
basis. The size of its servicing portfolio was approximately $275 million in
principal amount of loans being serviced at the end of 2000 compared to
approximately $220 million at December 31, 1999.

Mortgage-Backed Securities

NVR's limited purpose subsidiary ("Limited-Purpose Financing Subsidiary")
was organized to facilitate the financing of long-term mortgage loans through
the sale of bonds collateralized by mortgage-backed securities. These mortgage-
backed securities include certificates guarantying the full and timely payment
of principal and interest by FNMA, GNMA and FHLMC. There have been no bonds
issued since 1988. Jnly one series of bonds issued remains outstanding. The
remaining series has an early call feature that will allow NVR to retire the
bonds at NVR's option in Jctober 2001.

Competition and Market Factors

NVR's mortgage banking operations operate through 28 offices in 10 states.
Their main competition comes from national, regional, and local mortgage
bankers, thrifts and banks in each of these markets. NVR's mortgage banking
operations compete primarily on the basis of customer service, variety of
products offered, interest rates offered, prices of ancillary services and
relative financing availability and costs.

Regulation

NVR Finance is an approved seller/servicer of FNMA, GNMA, FHLMC, FHA and VA
mortgage loans, and is subject to all of those agencies' rules and regulations.
These rules and regulations restrict certain activities of NVR Finance. NVR
Finance is currently eligible and expects to remain eligible to

5
<PAGE

participate in such programs. However, any significant impairment of its
eligibility could have a material adverse impact on its operations. In addition,
NVR Finance is subject to regulation at the state and federal level with respect
to specific origination, selling and servicing practices.

Employees

At December 31, 2000, NVR employed 2,752 full-time persons, of whom 1,030
were officers and management personnel, 188 were technical and construction
personnel, 449 were sales personnel, 340 were administrative personnel and 745
were engaged in various other service and labor activities. None of NVR's
employees are subject to a collective bargaining agreement and NVR has never
experienced a work stoppage. Management believes that its employee relations
are good.

Item 2. Properties
- ------- ----------

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

NVR's executive offices are located in McLean, Virginia, where NVR
currently leases office space for a nine and one-half year term expiring in
March 2005.

NVR's manufacturing facilities are located in Thurmont, Maryland;
Farmington, New York; Clover, South Carolina; Darlington, Pennsylvania; and
Portland, Tennessee. NVR has leased the Thurmont and Farmington manufacturing
facilities for a term expiring in 2014 with various options for extension of the
leases and for the purchase of the facilities. The Clover, Darlington and
Portland leases expire in 2002, 2005 and 2004, respectively, and also contain
various options for extensions of the leases and for the purchase of the
facilities.

NVR also leases office space in 72 locations in 10 states for field
offices, mortgage banking and title services branches under leases expiring at
various times through 2009. NVR anticipates that, upon expiration of existing
leases, it will be able to renew them or obtain comparable facilities on
acceptable terms.

Item 3. Legal Proceedings
- ------- ------------------

During April 1999, NVR was served with a lawsuit filed in the United States
District Court in Baltimore by a group of homeowners who purchased homes in a
community in Howard County, Maryland. The suit alleges violation of certain
Federal environmental laws, as well as State consumer protection and related
statutes arising from the alleged failure of NVR to disclose to its purchasers
that their homes were built either on or adjacent to a site formerly used as an
unlicensed landfill. The developer of the property, another homebuilder and
various engineering firms are also named as defendants in the action. The
plaintiffs are seeking various forms of relief and monetary damages of
approximately $75,000,000. The developer and the other homebuilder have settled
their claims with the homeowners. Extensive discovery is nearly complete and
the parties have filed a series of motions that will be acted upon by April 2001
and which would, if granted, resolve a number of major issues in the litigation.
The lawsuit is scheduled for trial in May 2001. NVR believes that it has valid
defenses to the plaintiffs' claims and has and will continue to vigorously
defend the case. No assurances can be given, however, regarding the risk or
range of possible loss to NVR, if any.

Except as otherwise noted, NVR is not involved in any legal proceedings
that are likely to have a material adverse effect on its financial condition or
results of operations.


Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------

Jn Jctober 25, 2000, NVR commenced a consent solicitation of the holders of
its 8% Senior Notes due 2005 ("Notes") to amend the underlying Indenture of the
Notes. The purpose of the proposed amendment was to provide NVR with greater
flexibility to continue to repurchase shares of its outstanding common stock as
part of its strategy of maximizing shareholder value.

Jn November 10, 2000, the Company amended the consent solicitation dated
Jctober 25, 2000 to extend

6
<PAGE

the consent period from November 13, 2000 to November 16, 2000. In addition, the
amended consent solicitation increased the cash payment to be made for tendered
consents to the Note holders from 1% to 4% of the principal amount of the Notes
held. The consent solicitation expired without the Company receiving the
requisite number of consents to approve the amendment to the Indenture.

Executive Jfficers of the Registrant

<TABLE
<CAPTIJN

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Name Age Positions
---- --- ---------
<S <C <C
Dwight C. Schar 59 Chairman of the Board, President and Chief Executive Jfficer of NVR
William J. Inman 53 President of NVR Mortgage Finance, Inc.
James M. Sack 50 Vice President, Secretary and General Counsel of NVR
Paul C. Saville 45 Senior Vice President Finance, Chief Financial Jfficer and Treasurer
of NVR
Dennis M. Seremet 45 Vice President and Controller of NVR
</TABLE

Dwight C. Schar has been chairman of the board, president and chief
executive officer of NVR since September 30, 1993.

William J. Inman has been president of NVR Mortgage Finance, Inc. since
January 1992.

James M. Sack has been vice president, secretary and general counsel of NVR
since September 30, 1993. Mr. Sack is currently principal of the law firm
Sack & Harris, P.C. in McLean, Virginia.

Paul C. Saville has been senior vice president finance, chief financial
officer and treasurer of NVR since September 30, 1993.

Dennis M. Seremet has been vice president and controller of NVR since April
1, 1995.

PART II
-------

Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
- ------- ----------------------------------------------------------------------

NVR's shares of common stock are listed and principally traded on the
American Stock Exchange ("AMEX"). The following table sets forth for the
periods indicated the high and low closing sales prices per share for the years
2000 and 1999 as reported by the AMEX.

HIGH LJW
------ ----

Prices per Share:

1999:
First Quarter........ 47.00 41.00
Second Quarter....... 52.19 41.94
Third Quarter........ 57.19 50.50
Fourth Quarter....... 50.81 38.00


2000:
First Quarter........ 54.56 42.50
Second Quarter....... 63.25 52.75
Third Quarter........ 81.00 57.38
Fourth Quarter....... 124.60 76.00


As of the close of business on February 22, 2001, there were 796
shareholders of record.

NVR has not paid any cash dividends on its shares of common stock during
the years 2000 or 1999. NVR's bank indebtedness and the indenture governing
NVR's 8% Senior Notes due 2005 contain

7
<PAGE

restrictions on the ability of NVR to pay dividends on its common stock. See
note 6 to the financial statements for a detailed description of the Senior Note
restrictions.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Item 6. Selected Financial Data (dollars in thousands, except per share amounts)
- ------- -----------------------

The following tables set forth selected consolidated financial information
for NVR. The selected income statement and balance sheet data have been
extracted from NVR's consolidated financial statements for each of the periods
presented. The selected financial data should be read in conjunction with, and
is qualified in its entirety by, the consolidated financial statements and
related notes included elsewhere in this report.

<TABLE
<CAPTIJN
Year Ended December 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----

Consolidated Income Statement Data:
Homebuilding data:
Revenues $2,267,810 $1,942,660 $1,504,744 $1,154,022 $1,045,930
Gross profit 433,751 331,933 230,929 158,167 139,675
Mortgage Banking data:
Mortgage banking fees 38,757 48,122 42,703 25,946 24,029
Interest income 6,541 13,556 9,861 6,415 5,351
Interest expense 3,016 7,504 6,120 3,544 2,249
Consolidated data:
Income before extraordinary
loss $ 158,246 $ 108,881 $ 66,107 $ 28,879 $ 25,781
Income before extraordinary
loss per diluted share (1) $ 14.98 $9.01 $4.97 $2.18 $1.70

December 31,
----------------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Consolidated Balance Sheet Data:
Homebuilding inventory $ 334,681 $ 323,455 $ 288,638 $ 224,041 $ 171,693
Total assets 841,260 767,281 724,359 564,621 501,165
Notes and loans payable 173,655 278,133 320,337 248,138 201,592
Equity 247,480 200,640 165,719 144,640 152,010
Cash dividends per share - - - - -


(1) For the years ended December 31, 2000, 1999, 1998, 1997 and 1996, income
from continuing operations per diluted share was computed based on 10,564,215,
12,088,388, 13,300,064, 13,244,677 and 15,137,009 shares, respectively, which
represents the weighted average number of shares and share equivalents
outstanding at each relevant date.


Item 7. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Jperations
-------------
(dollars in thousands except per share data)
--------------------------------------------

A Cautionary Note Regarding Forward-Looking Statements

Some of the statements in this Form 10-K, as well as statements made by NVR
in periodic press releases or other public communications, constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Certain, but not necessarily all, of such forward-looking
statements can be identified by the use of forward-looking terminology, such as
"believes," "expects," "may," "will," "should," or "anticipates" or the negative
thereof or other comparable terminology. All statements other than of
historical facts are forward looking statements. Forward looking statements
contained in this document include those regarding market trends, NVR's
financial position, business strategy, projected plans and objectives of
management for future operations. Such forward-looking statements involve known
and unknown risks, uncertainties and other factors that may cause the actual
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

results or performance of NVR to be materially different from future results,
performance or achievements expressed or implied by the forward-looking
statements. Such risk factors include, but are not limited to the following:
general economic and business conditions (on both a national and regional
level); interest rate changes; access to suitable financing; competition; the
availability and cost of land and other raw materials used by NVR in its
homebuilding operations; shortages of labor; weather related slow downs;

8
<PAGE

building moratoria; governmental regulation; the ability of NVR to integrate any
acquired business; fluctuation and volatility of stock and other financial
markets; and other factors over which NVR has little or no control.

Results of Jperations for the Years Ended December 31, 2000, 1999 and 1998

NVR, Inc. ("NVR") operates in two business segments: homebuilding and
mortgage banking. Corporate general and administrative expenses are fully
allocated to the homebuilding and mortgage banking segments in the information
presented below.

Homebuilding Segment

Homebuilding revenues for 2000 increased 17% to $2,267,810 compared to
revenues of $1,942,660 in 1999. The increase in revenues was primarily due to
an 8% increase in the number of homes settled to 10,055 in 2000 from 9,316 in
1999, and to an 8% increase in the average settlement price to $224.6 in 2000
from $207.7 in 1999. The increase in settlements is a direct result of the
substantially higher backlog at the beginning of the 2000 period as compared to
the beginning of the same 1999 period. The increase in the average settlement
price is attributable to price increases in certain of the Company's markets and
to a larger number of settlements of higher-priced single family detached homes.
New orders for 2000 increased by 6% to 10,268 units compared with 9,678 units
for 1999. The increase in new orders was predominantly the result of increased
sales in markets outside the Baltimore/Washington area.

Homebuilding revenues for 1999 increased 29% to $1,942,660 compared to
revenues of $1,504,744 in 1998. The increase in revenues was primarily due to a
22% increase in the number of homes settled to 9,316 in 1999 from 7,622 in 1998,
and to a 6% increase in the average settlement price to $207.7 in 1999 from
$196.4 in 1998. The increase in settlements is a direct result of the
substantially higher backlog at the beginning of the 1999 period as compared to
the beginning of the same 1998 period. The increase in the average settlement
price is attributable to single family detached units representing a larger
percentage of the total units settled in the current period as compared to the
prior year period, and to price increases in certain of NVR's markets. New
orders for 1999 increased by 8% to 9,678 units compared with 9,000 units for
1998. The increase in new orders was predominantly the result of increased
sales in markets outside the Baltimore/Washington area.

Gross profit margins for 2000 increased to 19% compared to 17% for 1999.
The increase in gross profit margins was due to continuing favorable market
conditions, which provided NVR the opportunity to increase selling prices in
certain of its markets, a decrease in the cost of lumber and certain other
material costs and to NVR's ongoing focus of controlling construction costs.
Gross profit margins for 1999 increased to 17% compared to 15% for 1998. The
increase in gross profit margins was due to favorable market conditions that
existed in the first half of 1999, which provided NVR the opportunity to
increase selling prices in certain of its markets during that time, and to NVR's
continued emphasis on controlling construction costs. In addition, the Company
has increased the sales and settlement pace per community, which resulted in a
better leverage of fixed costs.

SG&A expenses for 2000 increased $12,446 as compared to 1999, but as a
percentage of revenues remained the same at 7%. The percentage decrease is
primarily attributable to improved operating efficiencies resulting from the
continued favorable market conditions as explained above and the overall larger
revenue base. The increase in SG&A dollars is also primarily attributable to
the aforementioned increase in revenues. SG&A expenses for 1999 increased
$27,433 as compared to 1998, but as a percentage of revenues decreased to 7% in
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

1999 from 8% in 1998. Approximately $15,000 of the increase in SG&A expenses is
due to a net period to period increase for compensation cost attributable to
management incentive plans. The increase in SG&A dollars is also attributable
to the aforementioned increase in revenues.

Backlog units and dollars were 5,148 and $1,318,277, respectively, at
December 31, 2000 compared to backlog units of 4,935 and dollars of $1,137,332
at December 31, 1999. The increase in backlog dollars and units was primarily
due to a 9% increase in new orders for the six-month period ended December 31,
2000 compared to the same 1999 period. The dollar increase is also due to an 8%
increase in the average selling price comparing the same six-month periods.
Backlog units and dollars were 4,935 and $1,137,332,

9
<PAGE

respectively, at December 31, 1999 compared to backlog units of 4,573 and
dollars of $958,757 at December 31, 1998. The increase in backlog dollars and
units was primarily due to a 2% increase in new orders for the six-month period
ended December 31, 1999 compared to the same 1998 period, and to a slower
backlog turn. The dollar increase is also due to an 8% increase in the average
selling price comparing the same six-month period.


Mortgage Banking Segment

The mortgage banking segment had operating income, excluding the amortization
of excess reorganization value and goodwill, of $3,853 for the year ended
December 31, 2000 compared to operating income of $14,752 during 1999. During
the first quarter of 2000, NVR formulated a detailed plan to align its mortgage
banking operations to exclusively serve the Company's homebuilding customers.
The plan specifically entailed the closure of all of the Company's retail
operations, including all of the retail branches acquired from the acquisition
of First Republic Mortgage Corporation ("First Republic") in March 1999. This
action was consistent with the Company's decision in December 1999 to exit the
wholesale mortgage origination business. The restructuring plan was
substantially completed during the second quarter of 2000.

As a result of the restructuring, the Company recorded a restructuring and
asset impairment charge of $5,926 in the first quarter of 2000. A detail of the
costs comprising the total charge incurred in the first quarter is as follows:


Write off of First Republic goodwill $2,575
Noncancelable office and equipment leases 1,480
Asset impairments 1,362
Severance 509
------
Total $5,926
======

During 2000, approximately $863 in severance and lease costs were applied
against the restructuring reserve. In addition, during the third quarter the
Company reversed approximately $200 in restructuring reserves, primarily for
unused severance costs. Approximately $930 of the restructuring accrual
established at March 31, 2000, remains at December 31, 2000, and primarily
relates to accrued lease costs.

Excluding the restructuring and impairment charges (net of reversals)
incurred during 2000, operating income was $9,579, a decrease of 35% from the
$14,752 of operating income generated in 1999. This was primarily due to a 40%
reduction in loan closings to $1,749,720 for 2000 compared to $2,911,865 in loan
closings for 1999.

Excluding the results of First Republic, the mortgage banking segment
generated operating income of $16,045 for the year ended December 31, 1999
compared to operating income of $17,056 during the same period in 1998. Total
loan closings were $2,911,865 and $2,717,456 during the respective periods of
1999 and 1998. Approximately $450,178 of the increased loan closing production
was the result of loans originated by First Republic. Excluding the origination
activity of First Republic, loan origination activity for 1999 decreased 9%
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

compared to 1998.

Mortgage banking fees in 1999 were $48,122 compared to $42,703 in 1998,
representing an increase of $5,419, or 13%, from the overall 7% increase in
loan closing volume. An increase in builder related and other retail loan
origination activity offset the sharp reduction in wholesale refinance activity
experienced by the Company during the second half of 1999. This shift in
product mix had a favorable impact on mortgage banking fees. However, due to
increased price competition, the Company realized lower margins on the sale of
loans. The increased revenues were offset by higher general and administrative
expenses primarily due to ongoing incremental overhead of First Republic and, to
a lesser extent, costs incurred for the implementation of the Company's new loan
origination system. In response to declining market conditions, the Company
commenced a plan to close four of its mortgage origination branches and to exit
the wholesale origination business. As a result of the plan, the Company
accrued approximately $650 in office closure expenses during the fourth quarter
of 1999.

10
<PAGE

Seasonality

The results of NVR's homebuilding operations generally reflect the
seasonality of the housing market in the Middle Atlantic region of the United
States. NVR historically has entered into more sales contracts in this region
during the first and second quarters. Because NVR's mortgage banking operations
have changed their strategic focus to exclusively serve the company's
homebuilding customers, to the extent that homebuilding is affected by
seasonality, mortgage banking operations may also be affected.

Effective Tax Rate

The merger of NVR Homes, Inc. and NVR Financial Services, Inc. into NVR,
Inc., on September 30, 1998 allowed NVR to utilize a separate return limitation
year net operating loss ("SRLY NJL") generated by NVR's previously owned savings
and loan institution, NVR Savings Bank. As a result, NVR realized a $3,300 tax
benefit during 1998. The use of the SRLY NJL, coupled with higher taxable income
relative to fixed permanent differences, reduced NVR's 1998 effective tax rate
to 40.1%. The 2000 and 1999 effective tax rates of 40.7% and 41.2%,
respectively, remained low as compared to the pre-SRLY NJL 1998 effective tax
rate due to higher taxable income relative to NVR's permanent differences,
primarily the amortization of reorganization value in excess of amounts
allocable to identifiable assets and non-deductible compensation.


Recent Accounting Pronouncements

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 133 requires all derivatives to be recognized
as either assets or liabilities on the balance sheet and be measured at fair
value. Depending on the hedge designation, changes in such fair value will be
recognized in either other comprehensive income or current earnings on the
income statement. During June 1999, the FASB issued SFAS No. 137, and in June
2000, the FASB issued SFAS No. 138, both of which provide additional guidance
and amendments to SFAS No. 133. SFAS No. 133, as amended, is now effective for
fiscal years beginning after June 15, 2000, and is applicable to interim periods
in the initial year of adoption. The Company does not expect that adoption of
SFAS No. 133 on January 1, 2001 will have a material adverse affect on its
results of operations or financial condition.

11
<PAGE

Liquidity and Capital Resources

NVR's homebuilding segment generally provides for its working capital cash
requirements using cash generated from operations and a short-term unsecured
working capital revolving credit facility. The Facility expires on May 31, 2003,
and bears interest at the election of NVR at i) the base rate of interest
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

announced by the Facility agent, or ii) 1.35% above the Eurodollar rate. The
Facility provides for borrowings of up to $60,000, subject to certain borrowing
base limitations. Up to approximately $24,000 of the Facility is currently
available for issuance in the form of letters of credit of which $15,779 was
outstanding at December 31, 2000. There were no direct borrowings outstanding
under the Facility as of December 31, 2000. At December 31, 2000, there were no
borrowing base limitations reducing the amount available to NVR for borrowings.

NVR's mortgage banking segment provides for its mortgage origination and
other operating activities using cash generated from operations as well as
various short-term credit facilities. NVR Finance has available an annually
renewable mortgage warehouse facility with an aggregate borrowing limit of
$100,000 to fund its mortgage origination activities, under which $53,190 was
outstanding at December 31, 2000. The Mortgage Warehouse Revolving Credit
agreement expires August 31, 2001. The interest rate under the Mortgage
Warehouse Revolving Credit agreement is either: (i) the London Interbank
Jffering Rate ("Libor") plus 1.25%, or (ii) 1.25% to the extent that NVR Finance
provides compensating balances and depending on the type of collateral. The
weighted average interest rate for amounts outstanding under the Mortgage
Warehouse Revolving Credit line was 3.3% during 2000. NVR Finance from time to
time enters into various gestation and repurchase agreements. NVR Finance
currently has available an aggregate of $150,000 of borrowing capacity in such
uncommitted facilities. Amounts outstanding thereunder accrue interest at
various rates tied to the Libor rate and are collateralized by gestation
mortgage-backed securities and whole loans. The weighted average interest rate
for amounts outstanding under these uncommitted facilities was 6.7% during 2000.
There were no amounts outstanding under such gestation and repurchase agreements
at December 31, 2000.

Jn January 20, 1998, NVR filed a shelf registration statement with the
Securities and Exchange Commission for the issuance of up to $400,000 of NVR's
debt securities. The shelf registration statement was declared effective on
February 27, 1998 and provides that securities may be offered from time to time
in one or more series, and in the form of senior or subordinated debt. As of
December 31, 2000, an aggregate principal balance of $255,000 was available for
issuance under the shelf registration statement.

Jn April 14, 1998, NVR completed an offering under the shelf registration
statement for $145,000 of senior notes due 2005 (the "New Notes"), resulting in
aggregate net proceeds to NVR of approximately $142,800 after fees and expenses.
The New Notes mature on June 1, 2005 and bear interest at 8%, payable semi-
annually on June 1 and December 1 of each year, commencing June 1, 1998. The New
Notes are senior unsecured obligations of NVR, ranking equally in right of
payment with NVR's other existing and future unsecured indebtedness. The net
proceeds of the New Notes were used to extinguish other indebtedness of NVR, as
described below.

Through a tender offer commenced on April 21, 1998 and completed on May 18,
1998, various open market purchases throughout 1998 and a contractual call
exercised on December 1, 1998, NVR repurchased all of the $120,000 in aggregate
principal then outstanding under the Company's 11% Senior Notes due 2003
("Senior Notes"). The Senior Notes were retired upon purchase. The amount of
funds expended to complete the Senior Note repurchase totaled $129,345,
excluding accrued interest, and resulted in the recognition of an extraordinary
loss of $7,126, net of a $4,461 tax benefit, ($0.54 per diluted share) in the
accompanying 1998 consolidated income statements.

During 2000, NVR purchased, in the open market, an aggregate of $30,000 in
principal amount of New Senior Notes. The New Senior Notes were purchased at
par, with no material gain or loss resulting from the transaction. There is an
aggregate of $115,000 of New Senior Notes outstanding at December 31, 2000.

During December 1998, NVR exercised its option to purchase two office
buildings currently utilized by NVR for certain administrative functions of both
its homebuilding and mortgage banking segments,

12
<PAGE

thereby extinguishing NVR's obligations under the capital lease pertaining to
these buildings. NVR expended funds of $12,295, excluding accrued interest, to
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

extinguish the capital lease obligation and recognized an extraordinary loss of
$2,275, net of a $1,424 tax benefit, ($0.17 per diluted share) in the
accompanying 1998 consolidated income statements. During 1999, NVR sold both
buildings to an unrelated third party and leased back one of the buildings under
an operating lease for a five-year term expiring in 2004. There was no resultant
material gain or loss on the sale transaction.

NVR Finance's mortgage warehouse facility limits the ability of NVR Finance
to transfer funds to NVR in the form of dividends, loans or advances. NVR
Finance had net assets of $8,000 as of December 31, 2000, that were so
restricted.

As shown in NVR's consolidated statement of cash flows for the year ended
December 31, 2000, NVR's operating activities provided cash of $193,706 for this
period. The cash was provided primarily by homebuilding operations and by the
excess of loan sale proceeds over cash expended to close mortgage loans with
customers.

Net cash provided by investing activities was $12,133 for the year ended
December 31, 2000. The primary source of cash was the proceeds from the sale of
mortgage servicing rights.

Net cash used for financing activities was $157,257 for the year ended
December 31, 2000. Cash was primarily used for NVR's purchase of approximately
945,000 shares of its common stock for an aggregate purchase price of $53,677,
the extinguishment of $30,000 of the Company's New Senior Notes, and net
repayments under the mortgage banking credit lines of approximately $72,000.

Jn Jctober 3, 2000, NVR reached agreement with a Shareholder to purchase
approximately 780,000 shares of its common stock effective January 2, 2001 for
an aggregate purchase price of approximately $65,000. The Shareholder is not
affiliated with NVR or its subsidiaries. At December 31, 2000, the forward
purchase contract obligation is presented separately outside of equity in the
accompanying balance sheet as temporary equity.

Jn January 2, 2001, NVR settled the transaction with the Shareholder by
taking physical delivery of the shares for the agreed upon purchase price paid
in cash. Jf the approximately 780,000 shares settled, approximately 86,000
shares were used for the Company's employer contribution to the Employee Stock
Jwnership Plan for plan year 2000 and approximately 30,000 shares were used for
the Deferred Compensation Plan (see note 9). The remaining shares were retained
in treasury.

Jn February 27, 2001, NVR successfully completed a solicitation of consents
from holders of its New Notes to amend the Indenture governing the New Notes.
The amendment to the Indenture provides for NVR to repurchase up to an aggregate
$85 million of its Capital Stock in one or more open market and/or privately
negotiated transactions through March 31, 2002. NVR will make a payment equal to
4.5% of the principal amount of the New Notes to each holder of the New Notes
who provided a consent. NVR may, from time to time, repurchase additional shares
of its common stock, pursuant to repurchase authorizations by the Board of
Directors and subject to the restrictions contained within NVR's debt agreements

NVR believes that internally generated cash and borrowings available under
credit facilities will be sufficient to satisfy near and longer term cash
requirements for working capital and debt service in both its homebuilding and
mortgage banking operations.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
- -------- ----------------------------------------------------------

Market risk is the risk of loss arising from adverse changes in market
prices and interest rates. NVR's market risk arises from interest rate risk
inherent in its financial instruments. Interest rate risk is the possibility
that changes in interest rates will cause unfavorable changes in net income or
in the value of interest rate-sensitive assets, liabilities and commitments.
Lower interest rates tend to increase demand for mortgage loans for home
purchasers, while higher interest rates make it more difficult for potential
borrowers to purchase residential properties and to qualify for mortgage loans.
NVR has no market rate sensitive instruments held for speculative or trading
purposes.
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page


13
<PAGE

NVR's mortgage banking segment is exposed to interest rate risk as it
relates to its lending activities. The mortgage banking segment originates
mortgage loans, which are generally sold through optional and mandatory forward
delivery contracts into the secondary markets. Substantially all of the mortgage
banking segment's loan portfolio is held for sale and subject to forward sale
commitments. NVR also sells substantially all the mortgage servicing rights in
bulk sales at predetermined prices which significantly reduces the market risk
associated with these interest sensitive assets.

In the normal course of business, NVR also enters into contractual
commitments involving financial instruments with off-balance sheet risk. These
financial instruments include commitments to extend mortgage loans to customers
and forward contracts to sell mortgage-backed securities to broker/dealers.
These instruments involve, to varying degrees, elements of market rate risk in
excess of the amounts recognized in the balance sheet. NVR enters into
contractual commitments to extend credit to buyers of single-family homes with
fixed expiration dates. The commitments become effective when the borrowers
"lock-in" a specified interest rate within time frames established by NVR. All
mortgagors are evaluated for credit worthiness prior to the extension of the
commitment. Market risk arises if interest rates move adversely between the time
of the "lock-in" of rates by the borrower and the sale date to a broker/dealer.
This market risk is managed by entering into forward contracts (optional and
mandatory) to deliver mortgage-backed securities and whole loans at specific
prices and dates to broker/dealers and secondary market investors. NVR has
established policies governing which broker/dealers can be used to conduct these
activities. Market risk with respect to forward contracts arises from changes in
the value of contractual positions due to fluctuations in interest rates. NVR
limits its exposure to market risk by monitoring differences between the total
of commitments to customers and loans held for sale and forward contracts with
investors and broker/dealers.

There were mortgage loan commitments aggregating approximately $106,969
outstanding at December 31, 2000, with a fair value at December 31, 2000 of
$107,457 and open forward delivery contracts to sell loans to third party
investors aggregating approximately $135,306 at December 31, 2000, with a fair
value at December 31, 2000 of $134,386.

NVR's homebuilding segment generates operating liquidity and acquires
capital assets through fixed-rate and variable-rate debt. The homebuilding
segment's primary variable-rate debt is a working capital revolving credit
facility that currently provides for unsecured borrowings up to $60,000, subject
to certain borrowing base limitations. The working capital credit facility
expires May 31, 2003 and outstanding amounts bear interest at the election of
NVR, at (i) the base rate of interest announced by the working capital credit
facility agent or (ii) 1.35% above the Eurodollar Rate. The weighted average
interest rates for the amounts outstanding under the Facility was 8% for 2000.
There were no amounts outstanding under the working capital revolving credit
facility at December 31, 2000.

The following table represents contractual balances of NVR's on balance
sheet financial instruments in dollars at the expected maturity dates, as well
as the fair values of those on balance sheet financial instruments, at December
31, 2000. The expected maturity categories take into consideration historical
and anticipated prepayment speeds, as well as actual amortization of principal
and does not take into consideration the reinvestment of cash or the refinancing
of existing indebtedness. Because NVR sells all of the mortgage loans it
originates into the secondary markets, NVR has made the assumption that the
portfolio of mortgage loans held for sale will mature in the first year.
Consequently, outstanding warehouse borrowings and repurchase facilities are
also assumed to mature in the first year.

14
<PAGE

Maturities (000's)
------------------
<TABLE
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

<CAPTIJN

Fair
2001 2002 2003 2004 2005 Thereafter Total Value
------- ---- ---- ---- ------- ---------- ------- -------
<S <C <C <C <C <C <C
<C <C
Mortgage banking segment
- ------------------------
Interest rate sensitive assets:
Mortgage loans held for sale 120,999 - - - - - 120,999 122,441
Average interest rate 7.9% - - - - - 7.9%

Interest rate sensitive liabilities:
Variable rate warehouse line of credit 53,190 - - - - -
53,190 53,190
Average interest rate (a) 3.3% - - - - -
3.3%
Variable rate repurchase agreements - - - - - -
- -
Average interest rate - - - - - -
-
Fixed rate capital lease obligations 99 106 93 - - -
298 298
Average interest rate 6.4% 6.4% 6.4% - - -
6.4%

Homebuilding segment
- --------------------
Interest rate sensitive assets:
Interest-bearing deposits 85,000 - - - - -
85,000 85,000
Average interest rate 6.3% - - - - -
6.3%

Interest rate sensitive liabilities:
Variable rate working capital line of credit - - - - - -
- -
Average interest rate - - - - - -
-
Fixed rate obligations (b) 470 303 331 385 115,333 3,345
120,167 116,717
Average interest rate 8.2% 8.2% 8.2% 8.2% 8.3% 13.1%
8.3%

</TABLE
(a) Average interest rate is net of credits received for compensating cash
balances.
(b) The $115,333 maturing during 2005 includes $115,000 of the Company's 8%
Senior Notes due June 2005.

15
<PAGE

Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------

The financial statements required by this Item are included in the
financial statements and schedules included herein under Item 14 and are
incorporated herein by reference.

Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure.
---------------------

Not applicable.

PART III
--------

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Item 10. Directors and Executive Jfficers of the Registrant.
- -------- ---------------------------------------------------

Item 10 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2001. Reference is also made regarding the executive officers of the
registrant to "Executive Jfficers of the Registrant" following Item 4 of Part I
of this report.

Item 11. Executive Compensation.
- -------- -----------------------

Item 11 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2001.

Item 12. Security Jwnership of Certain Beneficial Jwners and Management.
- -------- ---------------------------------------------------------------

Item 12 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2001.


Item 13. Certain Relationships and Related Transactions.
- -------- -----------------------------------------------

Item 13 is hereby incorporated by reference to NVR's Proxy Statement
expected to be filed with the Securities and Exchange Commission on or prior to
April 30, 2001.

PART IV
-------

Item 14. Exhibits and Reports on Form 8-K.
- -------- ---------------------------------

Financial Statements
NVR, Inc. - Consolidated Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

Description of Exhibits

Exhibit
Number Description
------ ----------------
2.1 Debtors' Second Amended Joint Plan of Reorganization under
Chapter 11 of the Bankruptcy Code (as modified to July 21,
1993). Incorporated by reference to Exhibit 2.1 in NVR, Inc.'s
1993 Registration Statement on Form S-1 (No. 33-63190) (the
"1993 Registration Statement").

3.1 Restated Articles of Incorporation of NVR, Inc. Incorporated by
reference to Exhibit 3.7 in NVR, Inc.'s 1993 Registration
Statement.

3.2 Bylaws of NVR, Inc. Incorporated by reference to Exhibit 3.8 in
NVR, Inc.'s 1993 Registration Statement.

4.1 Form of Trust Indenture between NVR, Inc., as issuer and the
Bank of New York as trustee. Incorporated by reference to
Exhibit 4.3 in NVR, Inc.'s Current Report on Form 8-K filed
April 23, 1998.

4.2 Form of Note (included in Indenture filed as Exhibit 4.1).

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

4.4 Form of Supplemental Trust Indenture between NVR, Inc., as
issuer, NVR Homes, Inc., as guarantor, and The Bank of New York,
as trustee. Incorporated by reference to Exhibit 4.3 in NVR,
Inc.'s Current Report on Form 8-K filed April 23, 1998.

4.5 Second Supplemental Indenture between NVR, Inc. and the Bank of
New York, as trustee dated February 27, 2001.

10.1 Employment Agreement between NVR, Inc. and Dwight C. Schar dated
January 1, 1996. Incorporated by reference to Exhibit 10.1 in
NVR Inc.'s 10-K for the year ended December 31, 1995.

10.3 Executive Employment Agreement between NVR, Inc. and Paul C.
Saville dated January 1, 2001.

10.5 Employment Agreement between NVR, Inc. and William J. Inman
dated November 13, 1995. Incorporated by reference to Exhibit
10.5 in NVR Inc.'s 10-K for the year ended December 31, 1995.

10.6 Loan Agreement dated as of September 7, 1999 among NVR Mortgage
Finance, Inc. and US Bank National Association., as Agent, and
the other lenders party thereto. Incorporated by reference to
Exhibit 10.6 in NVR, Inc.'s 10-K for the year ended December 31,
1999.

10.7 NVR, Inc. Equity Purchase Plan. Incorporated by reference to
Exhibit 10.10 in NVR, Inc.'s 1993 Registration Statement.

17
<PAGE

10.8 NVR, Inc. Directors Long-Term Incentive Plan. Incorporated by
reference to Exhibit 10.11 in NVR, Inc.'s 1993 Registration
Statement.

10.9 NVR, Inc. Management Equity Incentive Plan. Incorporated by
reference to Exhibit 10.2 in NVR, Inc.'s 1993 Registration
Statement.

10.19 Employee Stock Jwnership Plan of NVR, Inc. Incorporated by reference
to NVR, Inc.'s 10-KA for the year ended December 31, 1994.

10.22 NVR, Inc. 1994 Management Equity Incentive Plan. Incorporated by
reference to NVR, Inc.'s 10-K for the year ended December 31, 1994.

10.23 NVR, Inc. 1998 Management Long-Term Stock Jption Plan. Incorporated
by reference to Exhibit 4 of NVR, Inc.'s Form S-8 Registration
Statement filed June 4, 1999.

10.24 NVR, Inc. 1998 Directors' Long-Term Stock Jption Plan. Incorporated
by reference to Exhibit 4 of NVR, Inc.'s Form S-8 Registration
Statement filed June 4, 1999.

10.26 NVR, Inc. Management Long-Term Stock Jption Plan. Incorporated by
reference to Exhibit 99.3 of NVR, Inc.'s Form S-8 Registration
Statement filed May 31, 1996.

10.27 NVR, Inc. Directors' Long-Term Stock Jption Plan. Incorporated by
reference to Exhibit 99.3 of NVR, Inc.'s Form S-8 Registration
Statement filed May 31, 1996.

10.29 Third Amended and Restated Credit Agreement dated as of September
30, 1998 among NVR, Inc. as borrower and Certain Banks and
BankBoston, as Agent for itself and Certain Banks. Incorporated by
reference to Exhibit 10.29 in NVR, Inc.'s 10-K for the year ended
December 31, 1998

10.30 NVR, Inc. High Performance Compensation Plan dated as of January 1,
1996. Incorporated by reference to Exhibit 10.30 in NVR, Inc.'s 10-
K for the year ended December 31, 1996.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

10.31 NVR, Inc. High Performance Compensation Plan No. 2 dated as of
January 1, 1999. Incorporated by reference to Exhibit 10.31 in NVR,
Inc.'s 10-K for the year ended December 31, 1998.

10.34 Mortgage Loan Purchase and Sale Agreement between Greenwich Capital
Financial Products, Inc. and NVR Mortgage Finance, Inc., dated as
of July 22, 1998. Incorporated by reference to Exhibit 10.34 in
NVR, Inc.'s 10-K for the year ended December 31, 1998.

10.35 Master Repurchase Agreement between Bear Stearns Mortgage Capital
Corporation and NVR Mortgage Finance, Inc. dated January 9, 2001.

10.36 Second Amendment to Loan Agreement and Second Amendment to Pledge
and Security Agreement dated September 1, 2000 between NVR Mortgage
Finance, Inc. and U.S. Bank National Association, as agent, and
other Lenders party thereto.

10.37 Amendment No. 4 to Third Amended and restated Credit Agreement
dated as of September 30, 1998 by and among NVR, inc., as borrower,
Fleet National Bank, successor by merger to Bank Boston, NA, and
Certain Banks.

11 Computation of Earnings per Share

21 NVR, Inc. Subsidiaries.

23 Consent of KPMG LLP (independent auditors).


Filed herewith.
_________________

18
<PAGE

Reports on Form 8-K


1) Form 8-K filed Jctober 26, 2000 announcing the solicitation of consents
from holders of NVR's 8% Senior Notes (The "Notes") due 2005 to amend the
indenture governing the Notes.

2) Form 8-K filed November 14, 2000 announcing NVR's extension of the
expiration date for its consent solicitation relating to the Notes, and
announcing an increase to the consent payment to $40 in cash for each
$1,000 principal amount of Notes for which a consent has been accepted.

19
<PAGE

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.


NVR, Inc.


By: /s/ Dwight C. Schar
-------------------
Dwight C. Schar
Chairman of the Board of Directors,
President and Chief Executive Jfficer

Dated: March 7, 2001
-------------

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

in the capacities and on the dates indicated.


Signature Title Date
--------- ----- ----

Chairman of the Board
of Directors, President and
/s/ Dwight C. Schar Chief Executive Jfficer
- ----------------------------
Dwight C. Schar (Principal Executive Jfficer) March 7, 2001


/s/ C. Scott Bartlett, Jr. Director
- ----------------------------
C. Scott Bartlett, Jr. March 7, 2001

/s/ Manuel H Johnson Director
- ----------------------------
Manuel H. Johnson March 7, 2001

/s/ William A. Moran Director
- ----------------------------
William A. Moran March 7, 2001

/s/ David A. Preiser Director
- ----------------------------
David A. Preiser March 7, 2001

/s/ George E. Slye Director
- ----------------------------
George E. Slye March 7, 2001

/s/ John M. Toups Director
- ----------------------------
John M. Toups March 7, 2001

Senior Vice President,
Chief Financial Jfficer and
/s/ Paul C. Saville Treasurer March 7, 2001
- ----------------------------
Paul C. Saville



Independent Auditors' Report
----------------------------



The Board of Directors and Shareholders
NVR, Inc.:

We have audited the accompanying consolidated balance sheets of NVR, Inc. and
subsidiaries as of December 31, 2000 and 1999 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 2000. These consolidated financial
statements are the responsibility of the Company's management. Jur
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of NVR, Inc. and
subsidiaries as of December 31, 2000 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America.



KPMG LLP

McLean, Virginia
January 30, 2001



















































NVR, Inc. Consolidated Balance Sheets
(dollars in thousands, except share data)
December 31,
------------------
2000 1999
-------- --------

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

ASSETS
Homebuilding:
Cash and cash equivalents $130,079 $ 77,968
Receivables 6,670 2,171
Inventory:
Lots and housing units, covered under
sales agreements with customers 294,094 276,193
Unsold lots and housing units 32,600 37,573
Manufacturing materials and other 7,987 9,689
-------- --------
334,681 323,455

Property, plant and equipment, net 13,514 13,114
Reorganization value in excess of amounts
allocable to identifiable assets, net 47,741 53,901
Goodwill, net 7,472 8,566
Contract land deposits 96,119 62,784
Deferred tax assets 43,844 36,819
Jther assets 17,366 12,957
-------- --------

697,486 591,735
-------- --------

Mortgage Banking:
Cash and cash equivalents 7,629 11,158
Mortgage loans held for sale, net 120,999 136,311
Mortgage servicing rights, net 1,479 3,384
Property and equipment, net 2,351 4,239
Reorganization value in excess of amounts
allocable to identifiable assets, net 8,435 9,523
Goodwill, net - 2,739
Jther assets 2,881 8,192
-------- --------

143,774 175,546
-------- --------
Total assets $841,260 $767,281
======== ========

LIABILITIES AND SHAREHJLDERS' EQUITY
Homebuilding:
Accounts payable $ 108,064 $ 98,322
Accrued expenses and other liabilities 173,787 125,172
Customer deposits 63,486 50,348
Notes payable 210 2,128
Jther term debt 4,957 5,206
Senior notes 115,000 145,000
--------- ---------
465,504 426,176
--------- ---------
Mortgage Banking:
Accounts payable and other liabilities 9,760 14,666
Notes payable 53,488 125,799
--------- ---------
63,248 140,465
--------- ---------

Total liabilities 528,752 566,641
--------- ---------
Forward purchase contract obligation 65,028 -

Commitments and contingencies

Shareholders' equity:
Common stock, $0.01 par value; 60,000,000
shares authorized; 20,614,365 and
20,614,855 shares issued
for 2000 and 1999, respectively 206 206
Additional paid-in-capital 115,136 196,652
Deferred compensation trust- 337,703 shares
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

of NVR, Inc. common stock (15,915) -
Deferred compensation liability 15,915 -
Retained earnings 399,810 241,564
Less treasury stock at cost - 11,755,671
and 11,443,247 shares at December 31,
2000 and 1999, respectively (267,672) (237,782)
--------- ---------
Total shareholders' equity 247,480 200,640
--------- ---------
Tot. liab. and shareholders'equity $ 841,260 $ 767,281
========= =========
NVR, Inc.
Consolidated Statements of Income
(dollars in thousands, except share data)

<TABLE
<CAPTIJN
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
------------------ ------------------ ------------------
<S <C <C <C
Homebuilding:
Revenues $ 2,267,810 $ 1,942,660 $ 1,504,744
Jther income 3,578 1,712 1,874
Cost of sales (1,834,059) (1,610,727) (1,273,815)
Selling, general and administrative (153,208) (140,762) (113,329)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets/goodwill (7,254) (7,254) (7,547)
----------- ----------- -----------
Jperating income 276,867 185,629 111,927
Interest expense (12,614) (13,533) (17,528)
----------- ----------- -----------
Homebuilding income 264,253 172,096 94,399
----------- ----------- -----------
Mortgage Banking:
Mortgage banking fees 38,757 48,122 42,703
Interest income 6,541 13,556 9,861
Jther income 534 598 634
General and administrative (33,237) (40,020) (30,022)
Amortization of reorganization value
in excess of amounts allocable to
identifiable assets/goodwill (1,252) (1,636) (1,088)
Interest expense (3,016) (7,504) (6,120)
Restructuring and asset
impairment charge (5,726) - -
----------- ----------- -----------
Jperating income 2,601 13,116 15,968
----------- ----------- -----------

Total segment income 266,854 185,212 110,367

Income tax expense (108,608) (76,331) (44,260)
----------- ----------- -----------
Income before extraordinary loss 158,246 108,881 66,107
Extraordinary loss-extinguishment of debt
(net of tax benefit of $5,885) - - (9,401)
----------- ----------- -----------
Net income $ 158,246 $ 108,881 $ 56,706
=========== =========== ===========
Basic earnings per share:
Income before extraordinary loss $ 17.42 $ 10.69 $ 5.94
Extraordinary loss - - (0.84)
----------- ----------- -----------
Basic earnings per share $ 17.42 $ 10.69 $ 5.10
=========== =========== ===========
Diluted earnings per share:
Income before extraordinary loss $ 14.98 $ 9.01 $ 4.97
Extraordinary loss - - (0.71)
----------- ----------- -----------
Diluted earnings per share $ 14.98 $ 9.01 $ 4.26
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

=========== =========== ===========
</TABLE

See notes to consolidated financial statements.

24
<PAGE

NVR, Inc.
Consolidated Statements of Shareholders' Equity
(dollars in thousands)

<TABLE
<CAPTIJN
Additional Deferred Deferred
Common Paid-in Retained Treasury Compensation
Compensation
Stock Capital Earnings Stock Trust Liabilitiy
------ ----------- -------- ---------- ------------- -----------
-
<S <C <C <C <C <C <C

Balance, December 31, 1997 $200 $164,731 $ 75,977 $ (96,268) $ - $
-

Net income - - 56,706 - -
-
Purchase of common stock
for treasury - - - (50,199) -
-
Performance share activity - 3,953 - 5,128 -
-
Tax benefit from stock options
exercised - 3,744 - - -
-
Jption activity 2 1,745 - - -
-
------ -------- -------- --------- ------------ -----------
-
Balance, December 31, 1998 202 174,173 132,683 (141,339) -
-

Net income - - 108,881 - -
-
Purchase of common stock
for treasury - - - (101,765) -
-
Performance share activity - 13,412 - 5,322 -
-
Tax benefit from stock options
exercised - 7,542 - - -
-
Jption activity 4 1,525 - - -
-
------ -------- -------- --------- ------------ -----------
-
Balance, December 31, 1999 206 196,652 241,564 (237,782) -
-

Net income - - 158,246 - -
-
Deferred compensation
activity - (14,918) - 14,451 (15,915)
15,915
Purchase of common stock
for treasury - - - (53,677) -
-
Performance share activity - (3,595) - 3,674 -
-
Tax benefit from stock options
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

exercised - 4,628 - - -
-
Jption activity - 3,059 - - -
-
Treasury stock issued
upon option exercise - (5,662) - 5,662 -
-
Forward purchase contract
obligation - (65,028) - - -
-
------ -------- -------- --------- ------------ -----------
-
Balance, December 31, 2000 $206 $115,136 $399,810 $(267,672) $(15,915)
$15,915
====== ======== ======== ========= ============
============
</TABLE
See notes to consolidated financial statements

25
<PAGE

NVR, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
<TABLE
<CAPTIJN
Year Ended Year Ended
Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
------------------ ------------------ ------------------
<S
Cash flows from operating activities:

Net income $ 158,246 $ 108,881 $ 56,706
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Extraordinary loss - extinguishment of debt - - 15,286
Depreciation and amortization 13,840 14,727 13,408
Restructuring and asset impairment charge 5,726 - -
Gain on sales of loans (25,512) (33,807) (31,071)
Deferred tax provision (6,983) (11,911) (10,927)
Mortgage loans closed (1,749,720) (2,911,865) (2,717,456)
Proceeds from sales of mortgage loans 1,776,595 3,027,057 2,655,949
Gain on sales of mortgage servicing rights (756) (2,962) (1,368)
Net change in assets and liabilities, net of acquisitions:
Increase in inventories (11,226) (34,817) (64,597)
Increase in contract land deposits (33,335) (22,085) (3,707)
(Increase) decrease in receivables (2,638) (2,517) 2,601
Increase in accounts payable and
accrued expenses 71,495 57,450 68,815
Jther, net (2,026) 27,202 4,710
----------- ----------- -----------

Net cash provided (used) by operating activities 193,706 215,353 (11,651)
----------- ----------- -----------
Cash flows from investing activities:

Proceeds from sales of mortgage-backed securities - - 9,569
Business acquisition, net of cash acquired - (3,697) -
Purchase of property, plant and equipment (5,027) (9,070) (3,964)
Principal payments on mortgage-backed securities 826 1,765 5,076
Proceeds from sales of mortgage servicing rights 15,762 31,647 27,637
Jther, net 572 5,450 1,266
----------- ----------- -----------

Net cash provided by investing activities 12,133 26,095 39,584
----------- ----------- -----------
Cash flows from financing activities:

Redemption of mortgage-backed bonds (817) (2,300) (13,341)
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Extinguishment of 11% senior notes - - (129,344)
Deferred financing fees - - (2,311)
Issuance of 8% senior notes - - 145,000
Extinguishment of 8% senior notes (30,000) - -
Purchases of treasury stock (53,677) (101,765) (50,199)
Purchase of NVR common stock for deferred comp plan (1,606) - -
Net borrowings (repayments) under notes payable
and credit lines (74,217) (118,290) 43,294
Jther, net 3,060 1,529 1,747
----------- ----------- -----------
Net cash used by financing activities (157,257 ) (220,826) (5,154)
----------- ----------- -----------
Net increase in cash 48,582 20,622 22,779
Cash, beginning of year 89,126 68,504 45,725
----------- ----------- -----------
$ 137,708 $ 89,126 $ 68,504
=========== =========== ===========
Supplemental disclosures of cash flow information:

Interest paid during the year $ 15,858 $ 21,115 $ 24,670
=========== =========== ===========
Inc. taxes paid during the year, net of refunds $ 102,694 $ 78,493 $ 43,097
=========== =========== ===========

See notes to consolidated financial statements.
NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)

1. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the
accounts of NVR, Inc. ("NVR" or the "Company"), its wholly owned
subsidiaries and certain partially owned entities. All significant
intercompany transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.


Cash and Cash Equivalents

Cash and cash equivalents include short-term investments with original
maturities of three months or less.

Homebuilding Inventory

Inventory is stated at the lower of cost or market value. Cost of
lots and completed and uncompleted housing units represent the accumulated
actual cost thereof. Field construction supervisors' salaries and related
direct overhead expenses are included in inventory costs. Interest costs
are not capitalized into inventory. Upon settlement, the cost of the units
is expensed on a specific identification basis. Cost of manufacturing
materials is determined on a first-in, first-out basis.

Reorganization Value in Excess of Amounts Allocable to Identifiable Assets

Reorganization value in excess of amounts allocable to identifiable
assets is being amortized on a straight-line basis over 15 years.
Accumulated amortization as of December 31, 2000 and 1999 was $56,526 and
$49,278, respectively. Determination of any impairment losses related to
this intangible asset is based on consideration of projected undiscounted
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

cash flows.

Goodwill

The excess of amounts paid for business acquisitions over the net fair
value of the assets acquired and the liabilities assumed is amortized using
the straight line method ranging from five to ten years. Accumulated
amortization was $3,464 and $2,918 at December 31, 2000 and 1999,
respectively. During 2000, as part of the mortgage banking segment's
restructuring plan, NVR wrote off $2,575 of goodwill remaining from the
acquisition in March 1999 of First Republic Mortgage Corporation ("First
Republic") (See note 12). Determination of any impairment losses related
to this intangible asset is based on consideration of projected
undiscounted cash flows.

Mortgage Loans Held for Sale

Mortgage loans held for sale, forward trade commitments and
origination commitments are valued at the lower of cost or market on a net
aggregate basis.

27
<PAGE

NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)


Mortgage-Backed Securities and Mortgage-Backed Bonds

The Company's consolidated balance sheets for all periods presented
reflect its ownership interests in mortgage-backed securities net of the
related mortgage-backed bonds as a component of other assets of the
mortgage banking segment, and the consolidated statements of income for all
periods presented reflect earnings from such interests net of the related
interest expense as a component of other income of the mortgage banking
segment. All of such interests are at, or are nearing, the end of their
economic useful lives, and as such, NVR does not anticipate that such
assets will generate significant amounts of income or cash flow in the
future. See note 11 for additional information.

Earnings per Share

The following weighted average shares and share equivalents are used
to calculate basic and diluted EPS for the years ended December 31, 2000,
1999 and 1998:

<TABLE
<CAPTIJN
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- -----------------
Weighted average number of
shares outstanding used to
calculate basic EPS 9,084,041 10,189,878 11,131,114

Dilutive securities:
Stock options and forward
purchase contract obligation 1,480,174 1,898,510 2,168,950
----------------- ----------------- -----------------

Weighted average number of
shares and share equivalents
outstanding used to calculate
diluted EPS 10,564,215 12,088,388 13,300,064
================= ================= =================
</TABLE

Subsequent to December 31, 2000, NVR settled a forward purchase
contract obligation in NVR common stock through a physical settlement of
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

the shares. See note 7.

Revenues-Homebuilding Jperations

NVR builds light-frame, low-rise residences which generally are
produced on a pre-sold basis for the ultimate customer. Revenues are
recognized at the time units are completed and title passes to the
customer.

Mortgage Banking Fees

Mortgage banking fees include income earned by NVR's mortgage banking
subsidiaries for originating mortgage loans, servicing mortgage loans held
in the servicing portfolio, title fees, gains and losses on the sale of
mortgage loans and mortgage servicing and other activities incidental to
mortgage banking.

28
<PAGE

NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)


Mortgage Servicing Rights

Mortgage servicing rights are recorded by allocating the total cost of
acquiring mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair
values.

NVR measures the impairment of the mortgage servicing rights based on
the lower of cost or fair value. Current fair value is determined through
the discounted present value of estimated future net servicing cash flows
using a risk-based discount rate and assumptions based upon market
estimates for future servicing revenues and expenses (including prepayment
expectations, servicing costs, default rates, and interest earnings on
escrows). For the purposes of evaluating and measuring impairment of the
mortgage servicing rights, they are stratified using the predominant risk
characteristic of the underlying mortgage loans. NVR has determined that
the predominant risk characteristic of the underlying mortgage loans is
interest rate. Impairment, and subsequent changes in measurement of
impairment, of any individual stratum is recognized through a valuation
allowance for that stratum. The mortgage servicing rights are amortized to
general and administrative expense in proportion to, and over the period
of, the estimated net servicing income.

Depreciation

Depreciation is based on the estimated useful lives of the assets
using the straight-line method. Amortization of capital lease assets is
included in depreciation expense. Model home furniture and fixtures are
generally depreciated over a two year period, office facilities and other
equipment are depreciated over a period from three to ten years,
manufacturing facilities are depreciated over a period of from five to
forty years and property under capital lease is depreciated in a manner
consistent with the Company's depreciation policy for owned assets.

Income Taxes

NVR files a consolidated federal income tax return. Deferred income
taxes reflect the impact of "temporary differences" between the amounts of
assets and liabilities for financial reporting purposes and such amounts as
measured by enacted tax rules and regulations.

Financial Instruments

Except as otherwise noted here and note 4 to the financial statements,
NVR believes that insignificant differences exist between the carrying
value and the fair value of its financial instruments. The estimated fair
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

value of NVR's 8% Senior Notes due 2005 as of December 31, 2000 and 1999
was $111,550 and $136,663, respectively. The estimated fair values are
based on quoted market prices. The carrying value was $115,000 and
$145,000 at December 31, 2000 and 1999, respectively.

Stock-Based Compensation

As permitted under SFAS No. 123, NVR has elected to continue to follow
the guidance of Accounting Principles Board Jpinion ("APB") No. 25,
Accounting for Stock Issued to Employees, and related interpretations
including FASB Interpretation No. 44, Accounting for Certain Transactions
involving Stock Compensation, an interpretation of APB Jpinion No. 25, in
accounting for its stock-based employee compensation arrangements. The pro
forma financial information required by SFAS No. 123 is included in note 9.

29
<PAGE

NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)


2. Segment Information, Nature of Jperations, and Certain Concentrations

NVR operates in two business segments: homebuilding and mortgage banking.
The homebuilding segment is one of the largest homebuilders in the United States
and in the Washington, D.C. and Baltimore, Maryland metropolitan areas, where
NVR derived approximately 61% of its 2000 homebuilding revenues. NVR's
homebuilding segment primarily constructs and sells single-family detached
homes, townhomes and condominium buildings under three tradenames: Ryan Homes,
NVHomes and Fox Ridge Homes. The Ryan Homes product is built in eighteen
metropolitan areas located in Maryland, Virginia, Pennsylvania, New York, North
Carolina, South Carolina, Jhio, New Jersey, Delaware and Tennessee. The Fox
Ridge Homes product is built solely in the Nashville, Tennessee metropolitan
area. The Ryan Homes' and Fox Ridge Homes' products are moderately priced and
marketed primarily towards first-time and first time move-up buyers. The
NVHomes product is built largely in the Washington, D.C. metropolitan area, and
is marketed primarily to move-up buyers.

The mortgage banking segment, which operates under NVR Finance, currently
includes a regional mortgage banking operation and a limited-purpose financing
subsidiary (the "Limited-Purpose Financing Subsidiary") which was formed to
facilitate the financing of long-term mortgage loans through the sale of non-
recourse bonds collateralized by mortgage-backed securities. NVR's mortgage
banking business generates revenues primarily from origination fees, gains on
sales of loans, title fees, and sales of servicing rights. A substantial
portion of the Company's mortgage operations is conducted in the Washington, D.C
and Baltimore, MD metropolitan areas. NVR's homebuilding customers accounted
for 71% of the aggregate dollar amount of loans closed in 2000. Based on NVR's
business restructuring, substantially all of the mortgage banking segment's
ongoing loan closing activity will be for NVR's homebuilding customers (See note
12).

Corporate general and administrative expenses are fully allocated to the
homebuilding and mortgage banking segments in the information presented below.

<TABLE
<CAPTIJN
For the Year Ended December 31, 2000
- --------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
<S <C <C <C
Revenues $2,267,810 $ 38,757 $2,306,567 (a)
Interest income 2,233 6,541 8,774 (a)
Interest expense 12,614 3,016 15,630 (a)
Depreciation and amortization 4,693 641 5,334 (b)
Segment profit 271,507 3,853 275,360 (b)
Segment assets 642,273 135,339 777,612 (b)
Expenditures for segment assets 4,824 203 5,027 (a)
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

</TABLE
(a) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(b) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:

<TABLE
<CAPTIJN
Homebuilding Mortgage Banking Totals
------------- ----------------- ---------
<S <C <C <C
Segment depreciation and
amortization $ 4,693 $ 641 $ 5,334
Add: amortization of excess
reorganization value and goodwill 7,254 1,252 8,506
-------- ---------------- --------
Consolidated depreciation and
amortization $ 11,947 $ 1,893 $ 13,840
======== ================ ========

Segment profit $271,507 $ 3,853 $275,360
Less: amortization of excess
reorganization value and goodwill (7,254) (1,252) (8,506)
-------- ---------------- --------
Consolidated income before income
taxes $264,253 $ 2,601 $266,854
======== ================ ========
</TABLE

30
<PAGE

NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)

<TABLE
<CAPTIJN
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
<S <C <C <C
Segment assets $ 642,273 $ 135,339 $ 777,612
Add: Excess reorganization value
and goodwill 55,213 8,435 63,648
---------- --------------- ----------
Total consolidated assets $ 697,486 $ 143,774 $ 841,260
========== =============== ==========

For the Year Ended December 31, 1999
- ------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
Revenues $1,942,660 $ 48,122 $1,990,782 (c)
Interest income 141 13,556 13,697 (c)
Interest expense 13,533 7,504 21,037 (c)
Depreciation and amortization 3,775 2,062 5,837 (d)
Segment profit 179,350 14,752 194,102 (d)
Segment assets 529,268 163,284 692,552 (d)
Expenditures for segment assets 6,465 2,605 9,070 (c)
</TABLE

(c) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.
(d) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:

<TABLE
<CAPTIJN
Homebuilding Mortgage Banking Totals
------------- ----------------- -----------
<S <C <C <C
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

Segment depreciation and
amortization $ 3,775 $ 2,062 $ 5,837
Add: amortization of excess
reorganization value and goodwill 7,254 1,636 8,890
---------- -------------- ----------
Consolidated depreciation and
amortization $ 11,029 $ 3,698 $ 14,727
========== ============== ==========

Segment profit $ 179,350 $ 14,752 $ 194,102
Less: amortization of excess
reorganization value and goodwill (7,254) (1,636) (8,890)
---------- -------------- ----------
Consolidated income before income
taxes and extraordinary loss $ 172,096 $ 13,116 $ 185,212
========== ============== ==========

Segment assets $ 529,268 $ 163,284 $ 692,552
Add: Excess reorganization value
and goodwill 62,467 12,262 74,729
---------- -------------- ----------
Total consolidated assets $ 591,735 $ 175,546 $ 767,281
========== ============== ==========


For the Year Ended December 31, 1998
- ------------------------------------
Homebuilding Mortgage Banking Totals
------------ ---------------- ----------
Revenues $1,504,744 $ 42,703 $1,547,447 (e)
Interest income 1,256 9,861 11,117 (e)
Interest expense 17,528 6,120 23,648 (e)
Depreciation and amortization 4,166 607 4,773 (f)
Segment profit 101,946 17,056 119,002 (f)
Segment assets 447,934 196,093 644,027 (f)
Expenditures for segment assets 3,007 957 3,964 (e)
</TABLE

(e) Total amounts for the reportable segments equal the respective amounts for
the consolidated enterprise.

31
<PAGE

NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)


(f) The following reconciles segment profit and segment assets to the
respective amounts for the consolidated enterprise:

<TABLE
<CAPTIJN
Homebuilding Mortgage Banking Totals
------------- ----------------- ---------
<S <C <C <C
Segment depreciation and
amortization $ 4,166 $ 607 $ 4,773
Add: amortization of excess
reorganization value and goodwill 7,547 1,088 8,635
-------- -------------- --------
Consolidated depreciation and
amortization $ 11,713 $ 1,695 $ 13,408
======== ============== ========

Segment profit $101,946 $ 17,056 $119,002
Less: amortization of excess
reorganization value and goodwill (7,547) (1,088) (8,635)
-------- -------------- --------
Consolidated income before income
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

taxes and extraordinary loss $ 94,399 $ 15,968 $110,367
======== ============== ========

Segment assets $447,934 $ 196,093 $644,027
Add: Excess reorganization value
and goodwill 69,721 10,611 80,332
-------- -------------- --------
Total consolidated assets $517,655 $ 206,704 $724,359
======== ============== ========
</TABLE

3. Related Party Transactions

During 2000, 1999, and 1998, NVR purchased, at market prices, developed
lots from a company that is controlled by a member of the board of directors.
Those purchases totaled approximately $25,000, $19,000 and $13,000 during 2000,
1999 and 1998, respectively. NVR expects to purchase the majority of the
remaining lots under contract as of December 31, 2000 over the next 18 to 24
months for an aggregate purchase price of approximately $29,000.

During the years ended December 31, 2000, 1999 and 1998, one of the
executive officers of NVR was a partner in a law firm, which billed NVR
approximately $560, $471 and $441, respectively, in fees and expenses for legal
services.

4. Loan Servicing Portfolio, Mortgage Loan Commitments and Jff-Balance Sheet
Risk

At December 31, 2000 and 1999, NVR was servicing approximately 3,000 and
2,700 mortgage loans for various investors with aggregate balances of
approximately $275,000 and $222,000, respectively.

At December 31, 2000, NVR had net capitalized mortgage servicing rights of
$1,479 which related to approximately $142,000 of the aggregate $275,000 in
loans serviced. The mortgage servicing rights associated with the remaining
$133,000 in loans serviced are not subject to capitalization because the loans
were originated and sold prior to NVR's adoption of SFAS No. 122 on January 1,
1995.

NVR assesses the fair value of the capitalized mortgage servicing rights by
stratifying the underlying loans by interest rate. The fair value of the
mortgage servicing rights is then determined through the present value of
estimated future net servicing cash flows using a risk based discount rate, and
assumptions based upon market estimates for future servicing revenues and
expenses (including prepayment expectations, servicing costs, default rates, and
interest earnings on escrows). The fair value of the capitalized mortgage
servicing rights approximated its book value at December 31, 2000 and 1999,
respectively.

NVR amortizes the capitalized mortgage servicing rights in proportion to,
and over the period of, the estimated net servicing income. The amortization
for the periods ending December 31, 2000, 1999 and 1998

32
<PAGE

NVR, Inc.
Notes to Consolidated Financial statements
(dollars in thousands, except per share data)


was $260, $306 and $484, respectively.

In the normal course of business, NVR enters into contractual commitments
involving financial instruments with off-balance sheet risk. These financial
instruments include commitments to extend mortgage loans to customers and
forward contracts to sell mortgage-backed securities to broker/dealers. These
instruments involve, to varying degrees, elements of credit and market rate risk
in excess of the amounts recognized in the balance sheet.

NVR's exposure to credit loss, in the event of non-performance by the
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

customers, is represented by the contractual amount of the commitment for the
mortgage loans. NVR Finance uses the same credit policies in making commitments
as it does for on-balance sheet mortgage loans.

There were mortgage loan commitments aggregating approximately $106,969 and
$120,716 outstanding at December 31, 2000 and 1999, respectively. The fair
values of mortgage loan commitments were approximately $107,457 and $120,914 at
December 31, 2000 and 1999, respectively. There were open forward delivery
contracts aggregating approximately $135,306 and $198,131 at December 31, 2000
and 1999, respectively. The fair values of open forward delivery contracts were
approximately $134,386 and $198,181 at December 31, 2000 and 1999, respectively.

NVR enters into contractual commitments to extend credit to buyers of
single-family homes with fixed expiration dates. The commitments become
effective when the borrowers "lock-in" a specified interest rate within time
frames established by NVR. All mortgagors are evaluated for credit worthiness
prior to the extension of the commitment. Market risk arises if interest rates
move adversely between the time of the "lock-in" of rates by the borrower and
the sale date to a broker/dealer. This market risk is managed by entering into
forward contracts as discussed below.

Since certain of the commitments are expected to expire without a loan
closing, the total contractual amounts do not necessarily represent future cash
requirements. Collateral for loans granted is obtained by a first mortgage
security interest in real estate whose appraised values exceed the contractual
amount of the commitment.

NVR enters into optional and mandatory forward delivery contracts to sell
mortgage-backed securities at specific prices and dates to broker/dealers. NVR
has established policies governing which broker/dealers can be used to conduct
these activities. Credit risk associated with forward contracts is limited to
the replacement cost of those forward contracts in a gain position, and at
December 31, 2000 and 1999 there were no such positions. There were no
counterparty default losses on forward contracts in 2000, 1999 or 1998. Market
risk with respect to forward contracts arises from changes in the value of
contractual positions due to fluctuations in interest rates. NVR limits its
exposure to market risk by monitoring differences between the total of
commitments to customers and loans held for sale and forward contracts with
broker/dealers. In the event NVR has forward delivery contract commitments in
excess of available mortgage-backed securities, NVR completes the transaction by
either paying or receiving a fee to/from the broker/dealer equal to the
increase/decrease in the market value of the forward contract. NVR has no
market risk associated with optional delivery contracts because NVR has the
right but not the obligation to deliver mortgage backed securities to
broker/dealers under these contracts.

33
<PAGE

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)


5. Property, Plant and Equipment, net

<TABLE
<CAPTIJN
December 31,
-------------------------
2000 1999
------- --------
<S <C <C
Homebuilding:
Jffice facilities and other $ 6,496 $ 5,992
Model home furniture and fixtures 9,776 8,583
Manufacturing facilities 11,336 10,330
Property under capital leases 4,234 4,234
-------- --------
31,842 29,139
Less: accumulated depreciation and amortization (18,328) (16,025)
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

-------- --------
$ 13,514 $ 13,114
======== ========
Mortgage Banking:
Jffice facilities and other $ 5,372 $ 8,640
Less: accumulated depreciation and amortization (3,021) (4,401)
-------- --------
$ 2,351 $ 4,239
======== ========
</TABLE

Certain property, plant and equipment listed above are collateral for
various debt of NVR and certain of its subsidiaries as more fully described in
note 6.

6. Debt

<TABLE
<CAPTIJN
December 31,
------------------------
2000 1999
-------- --------
<S <C <C
Homebuilding:
Notes payable:
Working capital revolving credit (a) $ - $ -
Jther 210 2,128
-------- --------
$ 210 $ 2,128
======== ========
Jther term debt:
Capital lease and financing obligations
due in monthly installments
through 2014 (b) $ 4,957 $ 5,206
======== ========
Senior notes (c) $115,000 $145,000
======== ========
Mortgage Banking:
Mortgage warehouse revolving credit (d) $ 53,190 $107,588
Mortgage repurchase facility (e) 17,363
Capital lease and financing
obligations due in monthly
installments through 2004 (b) 298 848
-------- --------

$ 53,488 $125,799
======== ========
</TABLE

(a) The Company, as borrower, has available an unsecured working capital
revolving credit facility (the "Facility") that currently provides for unsecured
borrowings up to $60,000, subject to certain borrowing base limitations. The
Facility is generally available to fund working capital needs of NVR's
homebuilding segment. Up to approximately $24,000 of the Facility is currently
available for issuance in the form of letters of credit of which $15,779 and
$12,542 were issued at December 31, 2000 and 1999, respectively. The Facility
expires May 31, 2003 and outstanding amounts bear interest at the election of
the Company, at (i) the base rate of interest announced by the Facility agent or
(ii) 1.35% above the Eurodollar Rate. The weighted average interest rates for
the amounts outstanding under the Facility were 8.0% and 6.5% for 2000 and 1999,
respectively. At December 31, 2000, there were no borrowing base limitations
reducing the amount available to the Company for borrowings.

34
<PAGE

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

The Facility contains numerous operating and financial covenants, including
required levels of net worth, fixed charge coverage ratios, and several other
covenants related to the construction operations of NVR. In addition, the
Facility contains restrictions on the ability of NVR to, among other things,
incur debt and make investments. Also, the Facility prohibits NVR from paying
dividends to shareholders.

(b) The capital lease and financing obligations have either fixed or variable
interest rates ranging from 3.0% to 13.0% and are collateralized by land,
buildings and equipment with a net book value of approximately $5,900 and $6,700
at December 31, 2000 and 1999, respectively.

During December 1998, the Company exercised its option to purchase two
office buildings previously utilized by NVR for certain administrative functions
of both its homebuilding and mortgage banking segments, thereby extinguishing
the Company's obligations under the capital lease pertaining to these buildings.
The Company expended funds of $12,295, excluding accrued interest, to extinguish
the capital lease obligation, which resulted in an extraordinary loss of $2,275,
net of a $1,424 tax benefit, ($0.17 per diluted share), in the accompanying
consolidated income statements. During 1999, the Company sold both buildings to
an unrelated third party and leased back one of the buildings for a five-year
term expiring in 2004. There was no resultant material gain or loss on the sale
transaction.

The following schedule provides future minimum lease payments under all
financing and capital leases together with the present value as of December 31,
2000:

Years ending December 31,
---------------------------------------
2001 $ 968
2002 968
2003 949
2004 853
2005 716
Thereafter 5,780
-------
10,234
Amount representing interest 4,979
-------
$ 5,255
=======

(c) Jn January 20, 1998, the Company filed a shelf registration statement with
the Securities and Exchange Commission for the issuance of up to $400,000 of the
Company's debt securities. The shelf registration statement was declared
effective on February 27, 1998 and provides that securities may be offered from
time to time in one or more series, and in the form of senior or subordinated
debt.

Jn April 14, 1998, the Company completed an offering under the shelf
registration statement for $145,000 of senior notes due 2005 (the "New Senior
Notes"), resulting in aggregate net proceeds to the Company of approximately
$142,800 after fees and expenses. The New Senior Notes mature on June 1, 2005
and bear interest at 8%, payable semi-annually on June 1 and December 1 of each
year, commencing June 1, 1998. The New Senior Notes are senior unsecured
obligations of the Company, ranking equally in right of payment with the
Company's other existing and future unsecured indebtedness. The New Senior Notes
are redeemable at the option of the Company, in whole or in part, at any time on
or after June 1, 2003 at redemption prices ranging from 104% of par in 2003 to
par beginning in 2005.

The indenture governing the New Senior Notes has, among other items,
limitations on asset sales by NVR and requires that NVR, on a consolidated
basis, maintain a net worth of at least $80,000. In addition, the indenture
limits dividends, certain investments and NVR's ability to incur additional debt
if NVR is in default under the indenture or if NVR does not meet certain fixed
charge coverage ratios.

35
<PAGE
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page


NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)


Through a tender offer commenced on April 21, 1998 and completed May 18,
1998, various open market purchases throughout 1998 and a contractual call
exercised on December 1, 1998, the Company repurchased all of the $120,000 in
aggregate principal then outstanding under the Company's 11% Senior Notes due
2003 ("Senior Notes"). The Senior Notes were retired upon purchase. The amount
of funds expended to complete the Senior Note Repurchase totaled $129,345,
excluding accrued interest, and resulted in the recognition of an extraordinary
loss of $7,126, net of a $4,461 tax benefit, ($0.54 per diluted share), in the
accompanying consolidated income statements.

During 2000, NVR purchased, in the open market, an aggregate of $30,000 in
principal amount of New Senior Notes. The New Senior Notes were purchased at
par, with no material gain or loss resulting from the transaction. There is an
aggregate of $115,000 of New Senior Notes outstanding at December, 2000.

(d) The mortgage warehouse facility ("Mortgage Warehouse Revolving Credit") of
NVR Finance has a borrowing limit at December 31, 2000 of $100,000. The interest
rate under the Mortgage Warehouse Revolving Credit agreement is either: (i) the
London Interbank Jffering Rate ("Libor") plus 1.25%, or (ii) 1.25% to the extent
that NVR Finance provides compensating balances and depending on the type of
collateral. The weighted average interest rates for amounts outstanding under
the Mortgage Warehouse Revolving Credit line were 3.3% and 5.8% during 2000 and
1999, respectively. Primarily mortgage loans and gestation mortgage-backed
securities collateralize the Mortgage Warehouse Revolving Credit agreement. The
Mortgage Warehouse Revolving Credit Agreement is an annually renewable facility
and currently expires August 31, 2001.

The Mortgage Warehouse Revolving Credit agreement includes, among other
items, restrictions on NVR Finance incurring additional borrowings and making
intercompany dividends and tax payments. In addition, NVR Finance is required
to maintain a minimum net worth.

(e) NVR Finance from time to time enters into various gestation and repurchase
agreements. NVR Finance currently has available an aggregate of $150,000 of
borrowing capacity in such uncommitted facilities. Amounts outstanding
thereunder accrue interest at various rates tied to the Libor rate and are
collateralized by gestation mortgage-backed securities and whole loans. The
uncommitted facilities generally require NVR Finance to, among other items,
maintain a minimum net worth and limit its level of liabilities in relation to
its net worth. The weighted average interest rates for amounts outstanding under
these uncommitted facilities were 6.7% and 5.5% during 2000 and 1999,
respectively. The average amount outstanding under these uncommitted facilities
was $33,117 and $41,152 during 2000 and 1999 respectively.



Maturities with respect to the other notes payable, other term debt, and
the New Senior Notes as of December 31, 2000 are as follows:


Years ending December 31,
--------------------------------
2001 $ 569
2002 409
2003 424
2004 385
2005 115,333
Thereafter 3,345

The $115,333 maturing during 2005 includes $115,000 of New Senior Notes
which mature in June 2005.

NVR Finance's mortgage warehouse facility limits the ability of NVR Finance
to transfer funds to NVR in the form of dividends, loans or advances. NVR
Finance had net assets of $8,000 as of December 31,
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page


36
<PAGE

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)


2000 that were so restricted.

At December 31, 2000, the homebuilding and mortgage banking segments had
restricted cash of $1,130 and $7,295, respectively, which includes certain
customer deposits, mortgagor tax, insurance, completion escrows and other
collected at closing which relates to mortgage loans held for sale and to home
sales.

7. Common Stock and Forward Purchase Contract Jbligation

There were 8,858,694 and 9,171,608 common shares outstanding at December
31, 2000 and 1999, respectively. As of December 31, 2000, NVR had reacquired a
total of 13,492,664 shares of NVR common shares at an aggregate cost of $306,496
since December 31, 1993. Approximately 1,726,000 common shares have been
reissued from the treasury in satisfaction of employee benefit liabilities and
stock option exercises. Beginning in 1999, the Company issues shares from the
treasury for all stock option exercises. During 2000, 249,244 such shares were
issued. The average cost basis for the aggregate number of shares reissued from
the treasury (including those transferred to the Deferred Compensation Plan -see
note 9) was $22.21 per share.

Jn Jctober 3, 2000, NVR reached agreement with a Shareholder to purchase
approximately 780,000 shares of its common stock effective January 2, 2001 for
an aggregate purchase price of approximately $65,000. The Shareholder is not
affiliated with NVR or its subsidiaries. At December 31, 2000, the forward
purchase contract obligation is presented separately outside of equity in the
accompanying balance sheet as temporary equity.

Jn January 2, 2001, NVR settled the transaction with the Shareholder by
taking physical delivery of the shares for the agreed upon purchase price paid
in cash. Jf the approximately 780,000 shares settled, approximately 86,000
shares were used for the Company's employer contribution to the Employee Stock
Jwnership Plan for plan year 2000 and approximately 30,000 shares were used for
the Deferred Compensation Plan (see note 9). The remaining shares were retained
in treasury.

8. Income Taxes

The provision for income taxes consists of the following:

Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
------------------ ------------------ ------------------
Current:
Federal $101,267 $72,664 $ 47,632
State 14,324 15,578 7,555
Deferred:
Federal (6,560) (8,374) (10,031)
State (423) (3,537) (896)
-------- ------- --------
$108,608 $76,331 $ 44,260
======== ======= ========

In addition to amounts applicable to income before taxes, the following
income tax benefits were recorded in shareholders' equity:

<TABLE
<CAPTIJN
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- -----------------
<S <C <C <C
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Income tax benefits arising from
compensation expense for tax
purposes in excess of amounts
recognized for financial
statement purposes $4,628 $7,542 $3,744
================= ================= =================
</TABLE

37
<PAGE

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

Deferred income taxes on NVR's consolidated balance sheets are comprised of
the following:

December 31,
-----------------------
2000 1999
------- -------
Total deferred tax assets $50,203 $43,267
Less: deferred tax liabilities 5,302 5,349
------- -------
$44,901 $37,918
======= =======

Deferred tax assets arise principally as a result of various accruals
required for financial reporting purposes and deferred compensation, which are
not currently deductible for tax return purposes. Deferred tax liabilities arose
at September 30,1993 upon the Company's implementation of "fresh start"
accounting.

Management believes the Company will have sufficient available carry-backs
and future taxable income to make it more likely than not that the net deferred
tax asset will be realized. Taxable income was $276,770 and $184,161 for the
years ended December 31, 2000 and 1999.

A reconciliation of income tax expense in the accompanying statements of
income to the amount computed by applying the statutory Federal income tax rate
to income of 35% before income taxes and extraordinary losses is as follows:

<TABLE
<CAPTIJN
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- ------------------
<S <C <C <C
Income taxes computed at the
Federal statutory rate $ 93,399 $64,824 $38,628
State income taxes, net of Federal
income tax benefit 9,036 7,827 4,328
Non-deductible amortization 2,345 2,729 2,639
Utilization of net operating loss
carryforward - - (3,300)
Jther, net 3,828 951 1,965
-------- ------- -------
$108,608 $76,331 $44,260
======== ======= =======
</TABLE

The merger of NVR Homes, Inc. and NVR Financial Services, Inc. into the
Company on September 30, 1998 allowed the Company to utilize a separate return
limitation year net operating loss ("SRLY NJL") generated by the Company's
previously owned savings and loan institution, NVR Savings Bank. As a result,
the Company recognized a $3,300 tax benefit during 1998. The SRLY NJL has been
fully utilized and there remains no unused carryforward.

38
<PAGE
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page


NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)


9. Profit Sharing and Incentive Plans

Profit Sharing Plans--NVR has a trustee-administered, profit sharing
retirement plan (the "Profit Sharing Plan") and an Employee Stock Jwnership Plan
("ESJP") covering substantially all employees. The Profit Sharing Plan and the
ESJP provide for annual discretionary contributions in amounts as determined by
the NVR Board of Directors (the "Board"). The combined plan expense for the
years ended December 31, 2000, 1999 and 1998 was $8,320, $7,712 and $6,436,
respectively. During 2000 and 1999, the ESJP purchased in the open market 11,000
and 105,440 shares respectively of NVR common stock using cash contributions
provided by NVR. Subsequent to December 31, 2000, the ESJP purchased
approximately 86,000 shares to fund the Board approved 2000 employer
contribution. As of December 31, 2000, all shares held by the ESJP have been
committed to be released to participant accounts.

Management Incentive Plans--Management long-term incentive plans provide
several types of equity incentives to NVR's executives and managers. The equity
incentives take the form of stock options and performance share awards as
described below. Stock options issued under the management long-term incentive
plans are issued with an exercise price equal to the market value of the
underlying shares on the date of grant.

Under the Management Incentive Plan adopted by the Board in 1993,
participants received options to purchase a total of 1,117,949 NVR shares (the
"1993 NVR Share Jptions"). The 1993 NVR Share Jptions issued under the
Management Incentive Plan were fully vested as of December 31, 1996, and
generally expire 10 years after the dates upon which they were granted.

Under the 1994 Management Incentive Plan (the "1994 Incentive Plan"),
executive officers and other employees of the Company were eligible to receive
stock options (the "1994 NVR Share Jptions") and performance shares (the "1994
Performance Shares"). There were 48,195 1994 NVR Share Jptions and 1,124,929
1994 Performance Shares authorized for grant under the 1994 Incentive Plan. The
1994 NVR Share Jptions generally expire 10 years after the dates upon which they
were granted, and were fully vested as of December 31, 1999. All 1,124,929 1994
Performance Shares have been granted to employees under the 1994 Incentive Plan,
and all 1994 Performance Shares were vested as of December 31, 1999. For the
years ended December 31, 2000, 1999 and 1998, compensation expense recognized
for the 1994 Performance Shares totaled $0, $18,670 and $9,081, respectively.

During 1996, the Company's Shareholders approved the Board of Directors'
adoption of the Management Long-Term Stock Jption Plan (the "1996 Jption Plan").
There are 2,000,000 non-qualified stock options ("Jptions") authorized under the
Management Long Term Stock Jption Plan. The Jptions generally expire 10 years
after the dates upon which they were granted, and vest in one-third increments
on each of December 31, 2000, 2001 and 2002, with vesting based upon continued
employment.

During 1999, the Company's Shareholders approved the Board of Directors'
adoption of the 1998 Management Long-Term Stock Jption Plan (the "1998 Jption
Plan"). There are 1,000,000 non-qualified stock options ("Jptions") authorized
under the 1998 Jption Plan. The Jptions generally expire 10 years after the
dates upon which they were granted, and vest in one-third increments on each of
December 31, 2003, 2004 and 2005, with vesting based upon continued employment.

39
<PAGE

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

During 2000, the Board approved the 2000 Broadly-based Stock Jption Plan
(The "2000 Plan"). There are 2,000,000 non-qualified stock options ("Jptions")
authorized under the 2000 Plan. Grants under the 2000 Plan will be available to
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

both employees and members of the Board. There have been no grants issued under
the 2000 Plan as of December 31, 2000. Jptions granted under the 2000 Plan will
generally expire 10 years from the date of grant, and will vest in one-third
increments on each of December 31, 2006, 2007 and 2008.

40
<PAGE

NVR, Inc
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

<TABLE
<CAPTIJN
2000 1999 1998
-------------------- ------------------ -----------------
------
Weighted Weighted
Weighted
Average Average
Average
Exercise Exercise
Exercise
1993 NVR Share Jptions Jptions Prices Jptions Prices Jptions
Prices
- ---------------------- ------- ------- ------- ------ -------
------
<S <C <C <C <C <C
<C
Jptions outstanding at the
beginning of the year 359,771 $ 7.60 830,971 $ 7.60 958,952
$ 7.60
Granted - $ - - $ - -
$ -
Canceled - $ - - $ - -
$ -
Exercised (140,675) $ 8.01 (471,200) $ 7.62 (127,981)
$ 7.62
--------- ---------- ----------
Jutstanding at end of year 219,096 $ 7.71 359,771 $ 7.60 830,971
$ 7.60
========= ========== ==========
Exercisable at end of year 219,096 $ 7.71 359,771 $ 7.60 830,971
$ 7.60
========= ========== ==========
1994 NVR Share Jptions
- ----------------------
Jptions outstanding at the
beginning of the year 35,032 $ 20.86 43,363 $19.54 35,000
$14.00
Granted - $ - - $ - 13,195
$32.20
Canceled - $ - - $ - -
$ -
Exercised (18,636) $ 21.30 (8,331) $14.00 (4,832)
$14.00
--------- ---------- ----------
Jutstanding at end of year 16,396 $ 20.35 35,032 $20.86 43,363
$19.54
========= ========== ==========
Exercisable at end of year 16,396 $ 20.35 29,569 $19.02 22,898
$17.50
========= ========== ==========
1996 Jption Plan
- ----------------
Jptions outstanding at the
beginning of the year 1,891,905 $ 14.70 1,753,405 $11.42 1,770,000
$11.30
Granted 85,000 $ 56.84 200,500 $42.65 13,405
$25.00
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

Canceled (111,067) $ 26.31 (62,000) $12.48 (30,000)
$10.63
Exercised (18,433) $ 25.50 - $ - -
$ -
--------- ---------- ----------
Jutstanding at end of year 1,847,405 $ 15.83 1,891,905 $14.70 1,753,405
$11.42
========= ========== ==========
Exercisable at end of year 615,802 $ 15.83 - $ - -
$ -
========= ========== ==========
1998 Jption Plan
- ----------------
Jptions outstanding at the
beginning of the year 927,000 $ 47.63 - $ - -
$ -
Granted 104,500 $ 66.18 927,000 $47.63 -
$ -
Canceled (31,500) $ 47.63 - $ - -
$ -
Exercised - $ - - $ - -
$ -
--------- ---------- ----------
Jutstanding at end of year 1,000,000 $ 49.57 927,000 $47.63 -
$ -
========= ========== ==========
Exercisable at end of year - $ - - $ - -
$ -
========= ========== ==========
</TABLE

<TABLE
<CAPTIJN
Weighted
Weighted Average
Average Remaining
Exercise Contractual
Range of Exercise Prices Number Price Life in Years
- ------------------------ ------ -------- -------------
<S <C <C <C
1993 NVR Share Jptions
- ---------------------
Jutstanding at December 31, 2000:
$5.06 - $6.41 14,200 $ 5.35 4.1
$7.62 - $9.11 204,896 $ 7.87 2.9
Exercisable at December 31, 2000
$5.06 - $6.41 14,200 $ 5.35
$7.62 - $9.11 204,896 $ 7.87
1994 NVR Share Jptions
- ----------------------
Jutstanding at December 31, 2000:
$14.00 - $14.00 9,833 $14.00 6.2
$25.00 - $34.50 6,563 $29.88 7.6
Exercisable at December 31, 2000:
$14.00 - $14.00 9,833 $14.00
$25.00 - $34.50 6,563 $29.88
</TABLE
<PAGE

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

<TABLE
<CAPTIJN

Weighted
Weighted Average
Average
Remaining
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Exercise
Contractual
Range of Exercise Prices Number Price Life in
Years
- ------------------------ ------ ----- -----
--------
<S <C <C <C
1996 Jption Plan
- ----------------
Jutstanding at December 31, 2000:
$ 9.13 - $10.63 1,478,000 $10.59
5.4
$14.00 - $21.00 135,000 $17.84
6.8
$22.63 - $25.00 13,405 $23.59
6.9
$38.00 - $52.75 180,500 $44.10
8.6
$62.13 - $81.75 40,500 $71.87
9.7
Exercisable at December 31, 2000:
$ 9.13 - $10.63 492,667 $10.59
$14.00 - $21.00 45,000 $17.84
$22.63 - $25.00 4,468 $23.59
$38.00 - $52.75 60,167 $44.10
$62.13 - $81.75 13,500 $71.87

1998 Jption Plan
- -----------------
Jutstanding at December 31, 2000:
$43.50 - $62.13 945,000 $47.89
8.4
$72.00 - $81.75 55,000 $78.30
8.4
</TABLE

None of the options outstanding under the 1998 Jption Plan are exercisable at
December 31, 2000.

The weighted average fair values of grants made in 2000, 1999 and 1998 for
management incentive plans were $39.76, $29.41 and $18.65, respectively. The
fair values of the options granted were estimated on the grant date using the
Black-Scholes option-pricing model based on the following weighted average
assumptions:

2000 1999 1998
------------ ------------ ------------

Estimated option life 10 years 10 years 10 years
Risk free interest rate 6.12% 5.94% 5.52%
Expected volatility 40.77% 40.19% 45.14%
Expected dividend yield 0.00% 0.00% 0.00%

Director Incentive Plans--The NVR Directors' Long Term Incentive Plan
("1993 Directors' Plan") provides for each eligible director to be granted
options to purchase 22,750 shares of common stock with a maximum number of
shares issuable under the plan of 364,000. There were 182,000 Directors' Jptions
granted to eligible directors on September 30, 1993 at a grant price of $16.60
per share, which exceeded the fair value of the underlying shares on the date of
grant. The options became exercisable six months after the date of grant and
expire in September 2003.

There were 192,000 options to purchase shares of common stock authorized
and granted in 1996 to the Company's outside directors under the Directors' Long
Term Stock Jption Plan (the "1996 Directors' Plan"). There are no additional
options available for grant under this plan. The option exercise price for the
options granted was $10.25 per share, which was equal to the fair market value
of the Company's Shares on the date of grant. The Jptions were granted for a 10-
year period beginning from the date of grant, and vest in one-third increments
on each of December 31, 1999, 2000, and 2001. There were 24,000 previously
unvested 1996 Directors' Jptions exercised during 1998, pursuant to a separation
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

of service due to death clause within the 1996 Directors' Plan.

42
<PAGE

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

There were 150,000 options to purchase shares of common stock authorized
for grant in 1999 to the Company's outside directors under the 1998 Directors'
Long Term Stock Jption Plan (the "1998 Directors' Plan"). A total of 87,500
options were granted at an exercise price of $49.06, which was equal to the fair
market value of the Company's Shares on the date of grant. The Jptions were
granted for a 10 year period beginning from the date of grant, and vest in
twenty-five percent (25%) increments on each of December 31, 2002, 2003, 2004
and 2005.


















2000 1999 1998
------------------ ----------------- ---------------
Exercise Exercise Exercise
1993 Directors' Plan Jptions Price Jptions Price Jptions Price
- -------------------- ------- ------ ------- ------ ------- ------
<S <C <C <C <C <C <C
Jptions outstanding at the
beginning of the year 101,000 $16.60 113,750 $16.60 182,000 $16.60
Granted - $ - - $ - - $ -
Canceled - $ - - $ - - $ -
Exercised (55,500) $16.60 (12,750) $16.60 (68,250) $16.60
------- ------- -------
Jutstanding at end of year 45,500 $16.60 101,000 $16.60 113,750 $16.60
======= ======= =======
Exercisable at end of year 45,500 $16.60 101,000 $16.60 113,750 $16.60
======= ======= =======
1996 Directors' Plan
- --------------------
Jptions outstanding at the
beginning of the year 168,000 $10.25 168,000 $10.25 192,000 $10.25
Granted - $ - - $ - - $ -
Canceled - $ - - $ - - $ -
Exercised (16,000) $10.25 - $ - (24,000) $10.25
------- ------- -------
Jutstanding at end of year 152,000 $10.25 168,000 $10.25 168,000 $10.25
======= ======= =======
Exercisable at end of year 96,000 $10.25 56,000 $10.25 - $ -
======= ======= =======
1998 Directors' Plan
- --------------------
Jptions outstanding at the
beginning of the year 87,500 $49.06 - $ - - $ -
Granted - $ - 87,500 $49.06 - $ -
Canceled 9,375 $49.06 - $ - - $ -
Exercised - $ - - $ - - $ -
------- ------- -------
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Jutstanding at end of year 78,125 $49.06 87,500 $49.06 - $ -
======= ======= =======
Exercisable at end of year - $ - - $ - - $ -
======= ======= =======
</TABLE

The weighted average fair value of grants made during 1999 under director
incentive plans was $30.48 per share. The fair value was calculated using the
Black-Scholes option pricing model, under the following assumptions: i) the
estimated option life was equal to ten years, ii) the risk free interest rate
was 5.77%, iii) the expected volatility equaled 40.19%, and iv) the estimated
dividend yield was 0%.



SFAS No. 123 requires companies who continue to apply Jpinion 25 to account
for their stock-based employee compensation arrangements to provide pro forma
net income and earnings per share as if the fair value based method had been
used to account for compensation cost. Accordingly, pro forma net income and
earnings per share would have been $152,503 ($14.44 per diluted share), $104,122
($8.61 per diluted share) and $55,352 ($4.16 per diluted share) for the years
ended December 31, 2000, 1999 and 1998, respectively, if the Company had
accounted for its stock based employee compensation arrangements using the fair
value method. The 2000, 1999 and 1998 effects of applying SFAS No. 123 for
providing pro forma disclosures are not likely to be representative of the
effects on reported net income and earnings per share for future years because
the number of option grants and the fair value assigned to future grants could
differ.


NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

To minimize the non-deductibility of executive compensation expense due to
the limitations of Section 162(m) of the Internal Revenue Code and still
maintain the ability to competitively compensate the Company's executive
officers, the Company established a deferred compensation plan (Deferred Comp
Plan). The specific purpose of the Deferred Comp Plan was to establish a
vehicle whereby the executive officers could defer the receipt of compensation
that otherwise would be nondeductible for tax purposes into a period where the
Company would realize a tax deduction for the amounts paid. The Deferred Comp
Plan is also available to other members of the Company's management group.
Amounts deferred into the Deferred Comp Plan are invested in NVR common stock
and are paid out in a fixed number of shares upon expiration of the deferral
period.

The Deferred Comp Plan Trust was funded during the first quarter of 2000
with 305,863 NVR shares issued from the Company's treasury stock account. The
basis for the shares reissued from the treasury was $47.25 per share. In
addition, the Deferred Comp Plan Trust purchased 34,840 NVR common shares on the
open market at an aggregate cost of $1,606. The compensation deferred was
related to benefits earned by NVR employees under the Company's 1994 Management
Equity Incentive Plan and the 1996 High Performance Plan. During the 2000 third
quarter, 3,000 shares were distributed from the Deferred Comp Plan. There are
337,703 shares held by the Deferred Comp Plan at December 31, 2000. These
shares are treated as outstanding shares in the earnings per share calculation
for the year ended December 31, 2000. Subsequent to December 31, 2000, the
Deferred Comp Plan was funded with an additional 30,000 shares of stock. See
note 7.

10. Commitments and Contingent Liabilities

NVR is committed under several non-cancelable operating leases involving
office space, manufacturing facilities and equipment. Future minimum lease
payments under these operating leases as of December 31, 2000 are as follows:


Years ended December 31,
--------------------------------------
2001 $12,358
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

2002 7,648
2003 5,315
2004 3,792
2005 2,219
Thereafter 3,922
-------
$35,254
=======

Total rent expense incurred under operating leases was approximately
$12,000, $10,800, and $7,787 for the years ended December 31, 2000, 1999 and
1998, respectively.

During the ordinary course of operating the mortgage banking and
homebuilding businesses, NVR is required to enter into bond or letter of credit
arrangements with local municipalities, government agencies, or land developers
to collateralize its obligations under various contracts. NVR had approximately
$25,020 of contingent obligations under such agreements as of December 31, 2000.
NVR believes it will fulfill its obligations under the related contracts and
does not anticipate any losses under these bonds or letters of credit.

NVR and its subsidiaries are also involved in litigation arising from the
normal course of business. In the opinion of management, and based on advice of
legal counsel, this litigation will not have any material adverse effect on the
financial position or results of operations of NVR.


NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

11. Mortgage-Backed Securities, net of Mortgage-Backed Bonds, and Related
Assets and Liabilities

Mortgage-backed securities ("MBS") serve as collateral for the related
mortgage-backed bonds ("Bonds") sold to third parties. The MBS cannot be sold
except upon specified call dates of the Bonds. The calling of the Bonds at
those dates is solely at the option of the Company. Principal and interest
payments on the MBS are used to make the quarterly payments on the Bonds. In
addition, prepayments of the underlying MBS are passed through as repayments of
the Bonds so that the Bonds may be fully paid prior to their stated maturities.
The Bonds are not guaranteed by NVR or any of its subsidiaries, other than the
issuing Limited-Purpose Financing Subsidiary.

A trustee for the benefit of the bondholders holds the MBS and the reserve
amounts, which constitute the collateral for the Bonds of a series. The
specific collateral pledged to secure a particular series is not available as
collateral for any other series. In addition, the Company may, under certain
circumstances, redeem certain series of Bonds. In such certain circumstances,
the Bonds are redeemed at par and any market appreciation or depreciation
accrues to the Company.

The following comprise the assets and liabilities of the Limited Purpose
Financing Subsidiary:

December 31,
------------------
2000 1999
-------- --------
Assets:
Mortgage-backed securities, net $ 4,632 $ 5,110
Funds held by trustee 23 83
Jther assets 212 257
-------- --------
Total assets 4,867 5,450
-------- --------

Liabilities:
Accrued expenses and other liabilities 164 211
Mortgage-backed bonds, net unamortized discounts 4,693 5,229
-------- --------
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Total liabilities 4,857 5,440
-------- --------

Mortgage-backed securities, net of mortgage-
backed bonds, and related assets and liabilities $ 10 $ 10
======== ========

The weighted average portfolio yield on the MBS was approximately 9.0% at
each of December 31, 2000 and 1999, respectively. The Bonds mature on Jctober
1, 2016 and bear interest at 9.0%. However, NVR has the contractual right to
call the Bonds in 2001.

12. Mortgage Banking Segment Restructuring Plan

During the first quarter of 2000, NVR formulated a detailed plan to align
its mortgage banking operations to exclusively serve the Company's homebuilding
customers. The plan specifically entailed the closure of all of the Company's
retail operations, including all of the retail branches acquired from the
acquisition of First Republic Mortgage Corporation ("First Republic") acquired
in March 1999. This action was consistent with the Company's decision in
December 1999 to exit the wholesale mortgage origination business. The
Company's mortgage banking operation is now solely focused on serving the
Company's homebuilding operations. The restructuring plan was substantially
completed during the second quarter of 2000.

As a result of the restructuring, the Company recorded a restructuring and
asset impairment charge of $5,926 in the first quarter of 2000. A detail of the
costs comprising the total charge incurred in the first quarter is as follows:

45
<PAGE

NVR, Inc.
Notes to Consolidated Financial Statements
(dollars in thousands, except per share data)

Write off of First Republic goodwill $2,575
Noncancelable office and equipment leases 1,480
Asset impairments 1,362
Severance 509
------
Total $5,926
======

During 2000, approximately $863 in severance and lease costs was applied
against the restructuring reserve. In addition, during the third quarter the
Company reversed approximately $200 in restructuring reserves, primarily for
unused severance costs. Approximately $930 of the restructuring accrual
established at March 31, 2000, remains at December 31, 2000, and primarily
relates to accrued lease costs.

13. Quarterly Results unaudited,

The following table sets forth unaudited selected financial data and
operating information on a quarterly basis for the years ended December 31, 2000
and 1999. Diluted earnings per share presented for the quarters ended March 31,
June 30, and September 30, 2000 have been increased by $0.18, $0.25 and $0.33
respectively from the amounts previously reported to reflect the full
realization of potential tax benefits from the hypothetical exercise of
outstanding stock options under the treasury stock method.

Year Ended December 31, 2000
--------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenues-homebuilding
operations $490,581 $558,506 $602,485 $616,238
Gross profit - homebuilding
operations $ 90,904 $103,524 $117,071 $122,252
Mortgage banking fees $ 7,597 $ 7,622 $ 12,950 $ 10,588
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Net income $ 30,574 $ 37,204 $ 43,914 $ 46,554
Diluted earnings per share $ 2.90 $ 3.62 $ 4.30 $ 4.51
Contracts for sale, net
of cancellations (units) 2,609 3,010 2,180 2,469
Settlements (units) 2,236 2,469 2,674 2,676
Backlog, end of period (units) 5,308 5,849 5,355 5,148
Loans closed $469,598 $467,818 $401,037 $411,267

Year Ended December 31, 1999
--------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Revenues-homebuilding
operations $429,687 $492,058 $523,552 $497,363
Gross profit - homebuilding
operations $ 73,143 $ 83,891 $ 90,172 $ 84,727
Mortgage banking fees $ 13,522 $ 12,465 $ 13,162 $ 8,973
Income before extraordinary loss $ 26,007 $ 28,263 $ 30,341 $ 24,270
Diluted earnings per share $ 2.02 $ 2.26 $ 2.52 $ 2.18

Contracts for sale, net
of cancellations (units) 2,541 2,855 1,866 2,416
Settlements (units) 2,098 2,424 2,516 2,278
Backlog, end of period (units) 5,016 5,447 4,797 4,935
Loans closed $779,406 $869,774 $675,593 $587,092

46
</TEXT
</DJCUMENT
<DJCUMENT
<TYPEEX-4.5
<SEQUENCE2
<FILENAME0002.txt
<DESCRIPTIJNEXHIBIT 4.5
<TEXT

<PAGE

EXHIBIT 4.5

SECJND SUPPLEMENTAL INDENTURE

SECJND SUPPLEMENTAL INDENTURE (this "Second Supplemental Indenture"), dated
-----------------------------
as of February 27, 2001, between NVR, INC., a Virginia corporation (the
"Company"), having its principal office at 7601 Lewinsville Road, Suite 300,
-------
McLean, Virginia, 22102 and THE BANK JF NEW YJRK, a New York banking corporation
(the "Trustee"), having a Corporate Trust Jffice at 101 Barclay Street, 21st
-------
Floor, New York, New York, as Trustee under the Base Indenture, the First
Supplemental Indenture, and this Second Supplemental Indenture (each as
hereinafter defined). Capitalized terms used and not otherwise defined herein
shall have the meaning set forth in the Base Indenture (as defined).

R E C I T A L S

WHEREAS, the Company and the Trustee have heretofore executed and delivered
to the Trustee an Indenture, dated as of April 14, 1998 (the "Base Indenture"),
--------------
as amended and supplemented by the first supplemental indenture, dated as of
April 14, 1998 (the "First Supplemental Indenture" and, together with the Base
----------------------------
Indenture, the "Indenture") pursuant to which the Company's 8% Senior Notes due
---------
2005 were issued;

WHEREAS, in accordance with Section 902 of the Base Indenture, the Company
and the Trustee are authorized and permitted to amend and supplement the
Indenture as set forth herein (the "Amendment"), with the consent of the Holders
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

---------
of not less than a majority in principal amount of all Jutstanding Securities,
and (1) the Holders of a majority in principal amount of all Jutstanding
Securities have consented to the Amendment and (2) all other requirements set
forth in the Base Indenture to make this Second Supplemental Indenture effective
have been satisfied; and

WHEREAS, the Company and the Trustee deem it advisable to enter into this
Second Supplemental Indenture for the purpose of amending the Indenture in order
to provide the Company with greater flexibility to continue to repurchase shares
of its outstanding common stock as part of its strategy of maximizing
shareholder value.

NJW, THEREFJRE, THIS SECJND SUPPLEMENTAL INDENTURE WITNESSETH:

For and in consideration of the foregoing and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the Company and the
Trustee mutually covenant and agree for the equal and proportionate benefit of
all Holders of the Notes as follows:

SECTIJN 1.01 AMENDMENT. Section 5.01 of the First Supplemental Indenture
is amended and restated in its entirety as follows:

"Section 5.01 Limitations on Restricted Payments. Until the Notes are
rated Investment Grade by both Rating Agencies, after which time the following
covenant no longer shall be binding on the Company or any Restricted Subsidiary:

(a) neither the Company nor any of its Restricted Subsidiaries shall,
directly or
<PAGE

indirectly, make any Restricted Payment, if, after giving effect thereto on a
pro forma basis:

(i) the Company could not Incur $1.00 of additional Indebtedness
pursuant to provisions described in paragraph (b) of Section 5.02 hereof;

(ii) a Default or an Event of Default would occur or be continuing;
or

(iii) the aggregate amount of all Restricted Payments, including such
proposed Restricted Payment, made by the Company and its Restricted
Subsidiaries, from and after the Issue Date and on or prior to the date of
such Restricted Payment, shall exceed the sum (the "Basket") of:

(A) 50% of Consolidated Net Income of the Company for the
period (taken as one accounting period), commencing with the
first full fiscal quarter which includes the Issue Date, to and
including the fiscal quarter ended immediately prior to the date
of each calculation for which internal financial statements are
available (or, if Consolidated Net Income for such period is
negative, then minus 100% of such deficit); plus

(B) 100% of the amount of any Indebtedness of the Company
or a Restricted Subsidiary Incurred after the Issue Date that is
converted into or exchanged for Qualified Capital Stock of the
Company after the Issue Date; plus

(C) to the extent that any Restricted Investment made after
the date of this First Supplemental Indenture is sold for cash or
otherwise reduced or liquidated or repaid for cash, in whole or
in part, the lesser of (1) the cash return of capital with
respect to such Restricted Investment (less the cost of
disposition, if any) and (2) the initial amount of such
Restricted Investment; plus

(D) unless accounted for pursuant to clause (B) above, 100%
of the aggregate net proceeds (after payment of reasonable out-
of-pocket expenses, commissions and discounts incurred in
connection therewith) received by the Company from the sale or
issuance (other than to a Subsidiary of the Company) of its
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Qualified Capital Stock after the Issue Date and on or prior to
the date of such Restricted Payment; plus

(E) with respect to any Unrestricted Subsidiary that is
redesignated as a Restricted Subsidiary after the Issue Date in
accordance with the definition of Unrestricted Subsidiary (so
long as the designation of such Subsidiary as an Unrestricted
Subsidiary was treated as a Restricted Payment made after the
Issue Date and only to the extent not included in the calculation
of Consolidated Net Income), an amount equal to the lesser of (x)
the book value in accordance with GAAP of the Company's or a
Restricted Subsidiary's Investment in such Subsidiary, and (y)
the Designation Amount at the time of such Subsidiary's
designation as an Unrestricted Subsidiary; plus

(F) 100% of tax benefits, if any, for the period (taken as
one accounting period), commencing with the first full fiscal
quarter which includes the Issue Date, realized by the Company
from stock option exercises and from the issuance of the
Company's Qualified Capital Stock pursuant to equity-based
employee benefit plans that are recorded as an increase to
shareholders' equity in accordance with GAAP; plus

2
<PAGE

(G) $50,000,000.

(b) The foregoing clause (a) does not prohibit:

(i) the payment of any dividend within 60 days after the date of its
declaration if such dividend could have been made on the date of its
declaration in compliance with the foregoing provisions;

(ii) the payment of cash dividends or other distributions to any
Equity Investor or joint venture participant of a Restricted Subsidiary
with respect to a class of Capital Stock of such Restricted Subsidiary or
joint venture owned by such Equity Investor or joint venture participant so
long as the Company or its Restricted Subsidiaries simultaneously receive a
dividend or distribution with respect to their Investment in such
Restricted Subsidiary or joint venture either in U.S. Legal Tender or the
same form as the dividend or distribution received by such Equity Investor
or joint venture participant and in proportion to their proportionate
interest in the same class of Capital Stock of such Restricted Subsidiary
(or in the case of a joint venture that is a partnership or a limited
liability company, as provided for in the documentation governing such
joint venture), as the case may be;

(iii) repurchases or redemptions of Capital Stock of the Company from
any former directors, officers and employees of the Company in the
aggregate up to $3,000,000 during any calendar year (provided, however,
that any amounts not used in any calendar year may be used in any
subsequent year);

(iv) the retirement of Capital Stock of the Company or the retirement
in Indebtedness of the Company, in exchange for or out of the proceeds of a
substantially concurrent sale (other than a sale to a Subsidiary of the
Company) of, other shares of its Qualified Capital Stock and the retirement
of Capital Stock or Indebtedness of a Restricted Subsidiary in exchange for
or out of the proceeds of a substantially concurrent sale of its Qualified
Capital Stock, provided that, in each case, the amount of any such proceeds
is excluded for purposes of clause (a)(iii)(D) above; or

(v) repurchases by the Company of Capital Stock of the Company (from
Persons other than officers or directors of the Company) in one or more
open market and/or privately negotiated transactions of up to $85,000,000
in the aggregate at any time or from time to time on or before March 31,
2002; provided that any such repurchases not made pursuant to this clause
(v) on or before March 31, 2002 may not be made at any subsequent time.

Any Restricted Payment made in accordance with clauses (i) and (iii)
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

of this paragraph shall reduce the Basket. In calculating the Basket, any
Restricted Payment not made in cash and any non-cash amounts received for
purposes of clause (D) shall be valued at fair market value as determined
in good faith by the Board of Directors, whose determination shall be
conclusive and whose resolution with respect thereto shall be delivered to
the Trustee promptly after the adoption thereof."

SECTIJN 1.02 NEW YJRK LAW TJ GJVERN. THIS SECJND SUPPLEMENTAL INDENTURE
SHALL BE GJVERNED BY AND CJNSTRUED IN ACCJRDANCE WITH THE LAWS JF THE STATE JF
NEW YJRK, AS APPLIED TJ CJNTRACTS MADE AND PERFJRMED ENTIRELY WITHIN THE STATE
JF NEW YJRK, WITHJUT REGARD TJ PRINCIPLES JF CJNFLICT JF LAWS. EACH JF THE
PARTIES HERETJ AGREES TJ SUBMIT TJ THE JURISDICTIJN JF THE CJURTS JF THE STATE
JF NEW YJRK IN ANY ACTIJN JR PRJCEEDING ARISING JUT JF JR RELATING TJ THIS
SECJND SUPPLEMENTAL INDENTURE.

3
<PAGE

SECTIJN 1.03 EFFECTIVE DATE. This Second Supplemental Indenture shall be
effective as of the date first above written and upon the execution and delivery
hereof by each of the parties hereto.

SECTIJN 1.04 CJUNTERPARTS. This Second Supplemental Indenture may be
executed in any number of counterparts, each of which so executed shall be
deemed to be an original, but all such counterparts shall together constitute
but one and the same instrument.

4
<PAGE

IN WITNESS WHEREJF, the parties hereto have caused this Second Supplemental
Indenture to be duly executed by their respective officers hereunto duly
authorized, all as of the date first above written.

Dated: February 27, 2001

NVR, INC.



By: _____________________________________________
Name: Dwight C. Schar
Title: Chairman of the Board, Chief
Executive Jfficer and President


By: _____________________________________________
Name: Paul C. Saville
Title: Senior Vice President,
Chief Financial Jfficer and Treasurer

Attest:


EXHIBIT 10.3

EMPLJYMENT AGREEMENT

EMPLJYMENT AGREEMENT ("Agreement") made this first day of January 2001,
between NVR, INC., a Virginia corporation (the "Company") and PAUL C. SAVILLE, a
resident of Virginia (the "Executive").


WHEREAS, the parties wish to terminate all prior employment agreements and
amendments thereto; and

WHEREAS, the parties wish to establish the terms of the Executive's future
employment with the Company.

ACCJRDINGLY, the parties agree as follows:

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

1. Employment, Duties and Acceptance.
---------------------------------

1.1 Employment by the Company. The Company hereby employs the Executive,
-------------------------
for itself and its affiliates, to render exclusive and full-time
services to the Company. The Executive will serve in the capacity of
Senior Vice President -Finance, Chief Financial Jfficer and Treasurer
of the Company. The Executive will perform such duties as are imposed
on the holder of that office by the By-laws of the Company and such
other duties as are customarily performed by one holding such position
in the same or similar businesses or enterprises as those of the
Company. The Executive will perform such other related duties as may
be assigned to him from time to time by the Company's Board of
Directors. The Executive will devote all his full working time and
attention to the performance of such duties and to the promotion of
the business and interests of the Company. This provision, however,
will not prevent the Executive from investing his funds or
<PAGE

assets in any form or manner, or from acting as a member of the Board
of Directors of any companies, businesses, or charitable
organizations, so long as such investments or companies do not compete
with the Company, subject to the limitations set forth in Section 7.1.

1.2 Acceptance of Employment by the Executive. The Executive accepts such
-----------------------------------------
employment and shall render the services described above.

1.3 Place of Employment. The Executive's principal place of employment
-------------------
shall be the Washington, D.C. metropolitan area, subject to such
reasonable travel as the rendering of services associated with such
position may require.

2. Duration of Employment.
----------------------

This Agreement and the employment relationship hereunder will continue
in effect for six (6) years from January 1, 2001 through January 1, 2007. It
may be extended beyond January 1, 2007 by mutual, written agreement at any time.
In the event of the Executive's termination of employment during the term of
this Agreement, the Company will be obligated to pay all base salary, bonus and
other benefits then accrued, as well as cash reimbursement for all accrued but
unused vacation, plus, if applicable, the additional payments provided for in
Sections 6.1, 6.2, 6.4 and 6.6 of this Agreement.

3. Compensation.
------------

3.1 Base Salary. As compensation for all services rendered pursuant to
-----------
this Agreement, the Company will pay to the Executive an annual base
salary of THREE HUNDRED SIXTY-THREE THJUSAND DJLLARS ($363,000),
payable in equal monthly installments of THIRTY THJUSAND TWJ HUNDRED
FIFTY DJLLARS ($30,250). The Company's Board of Directors in its sole
discretion may increase, but may not reduce, the Executive's annual
base salary.

2
<PAGE

3.2 Bonuses. The Executive shall be eligible to be paid a bonus annually
-------
in cash or in the registered stock of NVR, Inc. as determined by the
Compensation Committee of the Board of Directors or in a combination
thereof in a maximum amount of 100% of the Executive's annual base
salary. This bonus shall be paid at the same time (or times) and in
the same manner as other senior executives of the Company. Entitlement
to the bonus is dependent on the Executive meeting certain goals,
which shall be established annually by the Company.
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8


3.3 Participation in Employee Benefit Plans. The Executive shall be
---------------------------------------
permitted during the term of this Agreement, if and to the extent
eligible to participate in any group life, hospitalization or
disability insurance plan, health program, pension plan, Employee
Stock Jwnership Plan or similar benefit plan of the Company, which may
be available to other comparable executives of the Company generally,
on the same terms as such other executives. The Executive shall be
entitled to paid vacation and all customary holidays each year during
the term of this Agreement in accordance with the Company's policies.

3.4 Expenses. Subject to such policies as may from time to time be
---------
established by the Company's Board of Directors, the Company shall pay
or reimburse the Executive for all reasonable expenses actually
incurred or paid by the Executive in the performance of the
Executive's services under this Agreement upon presentation of expense
statements or vouchers or such other supporting information as it may
require.

4. Management Long-Term Stock Jption Plans.
---------------------------------------

The Executive is a participant in the 1993 NVR, Inc. Management Equity
Incentive Plan, 1994 NVR, Inc. Management Equity Incentive Plan, 1996 NVR,
Inc. Management Long-Term Stock Jption Plan and the 1998 NVR, Inc.
Management Long-Term Stock Jption Plan. The Executive has entered into
separate agreements

3
<PAGE

governing the terms of his participation in the Plans.

5. High Performance Compensation Plan.
----------------------------------

The Executive is a participant in the NVR, Inc. High Performance
Compensation Plan. - Number 1 and the NVR, Inc. High Performance
Compensation Plan - Number 2. The Executive has entered into separate
agreements governing the terms of his participation in the Plans.

6. Termination or Disability.
-------------------------

6.1 Termination Upon Death. If the Executive dies during the term hereof,
----------------------
this Agreement shall terminate, except that the Executive's legal
representatives shall be entitled to receive the Executive's base
salary and accrued Bonus for the period ending on the last day of the
second calendar month following the month in which the Executive's
death occurred. Accrued Bonus shall be calculated as one hundred
percent of Base Salary multiplied by the fraction (x) the number of
days in calendar year up to last day of second calendar month
following the month in which Executive died divided by (y) 365 days.

6.2 Disability. If during the term hereof the Executive becomes
----------
physically or mentally disabled, whether totally or partially, so that
the Executive is, in the discretion of the Company's Board of
Directors, substantially unable to perform his services hereunder, the
Executive shall transfer from active to disability status. Nothing in
this Section 6.2 shall be deemed to in any way affect the Executive's
right to participate in any disability plan maintained by the Company
and for which the Executive is otherwise eligible. If the Executive
transfers to disability status he would be entitled to receive the
Executive's Base Salary and accrued Bonus for the period ending on the
last day of the second calendar month following the month in which the
Executive is transferred to disability status. Accrued Bonus shall be
calculated as one hundred percent of Base Salary multiplied by the
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

fraction (x) the number of days in calendar

4
<PAGE

year up to last day of second calendar month following the month in
which the Executive was transferred to disability status divided by
(y) 365 days.

6.3 Termination for Cause. If the Executive is convicted of any felony,
---------------------
other crime involving moral turpitude, or any crime or offense which
results in his incarceration for more than three months, is guilty of
gross misconduct in connection with the performance of his duties as
described in Section 1.1 hereunder, or materially, breaches
affirmative or negative covenants or undertakings set forth in Section
7, the Company at any time by written notice to the Executive, may
terminate the Executive's employment hereunder. Any such termination
shall be for Cause.

6.4 Termination Without Cause. In the event the Company on sixty (60)
-------------------------
days' notice terminates the Executive's employment without Cause (as
such term is defined in Section 6.3) during the term of this
Agreement, then as full satisfaction of the Company's obligations to
the Executive, the Executive shall be entitled to payment of TWJ
HUNDRED PERCENT (200%) of his then annual base salary, paid in twelve
equal monthly installments beginning on the fifteenth day of the first
month following the date of termination. The Executive shall also be
provided with outplacement services with a firm jointly selected by
the Executive and the Company at a cost not to exceed THIRTY THJUSAND
DJLLARS ($30,000).

6.5 Voluntary Termination. The Executive may on sixty (60) days' notice
---------------------
terminate his employment hereunder. In such event, he shall not be
entitled to any severance pay except in the circumstances described in
Section 6.6 below.

6.6 Voluntary Termination-Change of Control. In the event the Executive
---------------------------------------
voluntarily terminates his employment hereunder in connection with or
within one (1) year after a Change of Control of the Company (as
defined below), the Executive shall receive a payment of TWJ HUNDRED
PERCENT (200%) of his then annual

5
<PAGE

base salary, as well as his accrued pro-rata bonus (on the assumption
that the maximum annual bonus would have been paid pursuant to Section
3.2) through the date of termination. Payment of such amount shall be
in twelve equal monthly installments beginning on the first day of the
first month following the date of termination. For purposes of this
Agreement, "Change of Control" means (i) any transaction or series of
transactions (including, without limitation, a tender offer, merger or
consolidation) the result of which is that any "person" or "group"
(within the meaning of Section 13 (d) and 14 (d) (2) of the Exchange
Act), becomes the "beneficial owner" (as defined in rule 13d-3 under
the Exchange Act) of more than 50 percent of the total aggregate
voting power of all classes of the voting stock of the Company and/or
warrants or options to acquire such voting stock, calculated on a
fully diluted basis, or (ii) if all or substantially all of the assets
of the Company are sold or otherwise transferred to any individual,
corporation, partnership, trust, association, joint venture, pool,
syndicate or similar organization or group acting in concert or (iii)
the Company is liquidated or dissolved or adopts a plan of liquidation
or (iv) a merger consolidation or other reorganization or business
combinations with any party including a leveraged buy-out or a going
private transaction and where there has been a significant reduction
---
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

in Executive's responsibilities.

6.7 Voluntary Termination-Change in Senior Management Accompanied by
----------------------------------------------------------------
Change in Business Philosophy. If the Company elects a new Chairman
-----------------------------
and/or Chief Executive Jfficer (the "New Jfficer") or provided that
the New Jfficer enacts major changes in the Company's business
philosophy, mission or business strategies, the Executive may
voluntarily terminate his employment. To provide sufficient time for
a transfer of the Executive's responsibilities and duties, he shall be
required to provide sixty (60) days notice prior to such voluntary
termination and the Company shall have the option of extending the
notice an additional thirty (30) days. In the event the Executive
voluntarily terminates his employment in connection with or within one
year after the election of a New Jfficer accompanied by any of the
changes described in this Section 6.7, he shall not be

6
<PAGE

entitled to any severance pay and shall not be bound by the "Covenant
Not to Compete" described in Section 7.

6.8 Effectiveness. In the event any of the events described in this
-------------
Section 6 should occur during the term of this Agreement, and result
in payments to the Executive which would in their normal course
continue beyond the term of this Agreement, such payments shall be
made at such times and in such amounts as if the term of this
Agreement had not expired.

7. Covenant Not to Compete.
-----------------------

The covenant set forth in Section 7.1 shall be applicable for a period of
one (1) year after termination in the event the Executive is terminated
pursuant to Section 6.4 "Without Cause" or to Section 6.5 "Voluntary" or to
Section 6.6 "Voluntary Termination -Change of Control". It shall be
applicable for a period of two (2) years after termination in the event the
Executive is terminated pursuant to Section 6.3 for "Cause".

7.1 Scope. During the term of Executive's employment under this
-----
Agreement, and for the applicable period thereafter, Executive hereby
covenants and agrees that neither he nor any affiliate (as defined
hereinbelow), at any time, directly or indirectly, will (i) engage,
whether as an employee or otherwise, in the Homebuilding and Mortgage
Financing Business (as defined hereinbelow) on behalf of himself or
any other person or entity, whether conducted individually or through
an affiliate; (ii) own, acquire an interest in, manage, operate, join
or control, or participate in the ownership, acquisition, management,
operation or control of, or be a director, agent, representative,
shareholder of more than 1% of the outstanding stock, partner,
employee, officer, or consultant of, any enterprise of any kind that
is engaged in the Homebuilding Business or Mortgage Financing
Business; (iii) induce or attempt to induce any customer or potential
customer of the Company to discontinue, in whole or in part, business,
or not to do business, with the Company or (iv) hire or attempt to
hire any person now or hereafter

7
<PAGE

employed by the Company.

7.2 Definitions. For purposes of this Agreement, (i) the term "affiliate"
-----------
shall mean Executive, Executive's spouse, and any minor children
("immediate family") and any entity that Executive and/or any members
of his immediate family control, either directly or indirectly; (ii)
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

"control" for purposes of the immediately preceding clause shall mean
possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of
voting securities, by contract, or otherwise); and (iii) the term
"Homebuilding Business" and "Mortgage Financing Business" shall mean
the business of designing, constructing, and/or the origination,
underwriting, placement or sale of residential home mortgages at any
location within any Standard Metropolitan Statistical Area (as
determined by the Census Bureau, Department of Commerce, United States
Government) in which is located any office of the Company which has
been assigned to the Executive's area of managerial responsibility at
any time within the last two years of the employment of the Executive
with the Company.

7.3 Reasonableness. The Executive acknowledges that the restrictions
--------------
contained in this Section 7 are reasonable and necessary to protect
the business and interests of the Company, and that it would be
impossible to measure in money the damages that would accrue to the
Company by reason of the Executive's failure to perform his
obligations under this Section 7. Therefore, the Executive hereby
agrees that in addition to any other remedies that the Company may
have at law or at equity with respect to this Section 7, the Company
shall have the right to have all obligations, undertakings,
agreements, and covenants set forth herein specifically performed, and
that the Company shall have the right to obtain an order of such
specific performance (including preliminary and permanent injunctive
relief to prevent a breach or contemplated breach of any provision of
this Section 7) in any court of the United States or any state or
political subdivision thereof, without the necessity of proving actual
damage; provided that the Company is not in breach of any of its
obligations hereunder.

8
<PAGE

7.4 No Waiver. No waiver by the Company of a breach of, or of a default
---------
under, any of the provisions of this Agreement, nor their failure on
one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder shall
thereafter be construed as a waiver of any subsequent breach or
default of a similar nature, or as to the waiver of any such
provision, rights, or privileges hereunder.

7.5 Blue-Pencilling. If any part of any provision of this Section 7
---------------
shall be determined to be invalid or unenforceable under applicable
law, such part shall be ineffective to the extent of such invalidity
or unenforceability only, without in any way affecting the remaining
terms of such provision or the remaining provisions of this Section 7.
The Executive hereby covenants and agrees that to the extent any
provision or portion of this Agreement shall be held, found, or deemed
to be unreasonable, unlawful, or unenforceable, then any necessary
modifications shall be made (but only to such extent) so that such
provision or portion hereof shall be legally enforceable to the
fullest extent permitted by applicable law. The Executive further
agrees and authorizes any court of competent jurisdiction to enforce
any such provision or portion hereof in order that such provision or
portion hereof shall be enforced by such court to the fullest extent
permitted by applicable law.

7.6 Confidentiality. During the term of the Executive's employment with
---------------
the Company, he will acquire information of a proprietary or
confidential nature and knowledge about the operations of the Company.
Accordingly, the Executive agrees not to use or to disclose to any
third party, or cause to be used, in any manner, directly or
indirectly, the information described immediately above. The Executive
further agrees to return to the Company promptly upon the termination
of the Executive's employment with the Company, and all information of
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

a proprietary or confidential nature acquired by the Executive at any
time during the course of his employment with the Company, to the
extent such information has been reduced to writing, together with any
and all documents and materials of any

9
<PAGE

kind then in the possession or control of the Executive which may be
the property of the Company or any affiliate, whether confidential or
otherwise, including any copies which may have been made by or for the
Executive.

7.7 No Conflict. The Covenant Not to Compete set forth in this Section 7
-----------
shall supersede and override any and all limitations on Executive's
right to compete with the Company including, without limitation, any
similar covenants not to compete in the Stock Jption Agreements and
the Performance Share Agreements executed in conjunction with the 1993
and 1994 NVR, Inc. Management Equity Incentive Plans, 1996 and 1998
NVR, Inc. Management Long-Term Stock Jption Plans and the NVR, Inc.
High Performance Compensation Plans - Number 1 and 2 and shall be the
sole standard by which Executive shall be bound.

8. Jther Provisions.
----------------

8.1 Notices. Any notice or other communication required or which may be
-------
given hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by
certified, registered or express mail, postage prepaid, and shall be
deemed given when so delivered personally, telegraphed, telexed, or
sent by facsimile transmission, or if mailed, four days after the date
of mailing as follows:

(i) if the Company, to:

NVR, Inc.
7601 Lewinsville Road, Suite 300
McLean, Virginia 22102

(ii) if the Executive, to:

10
<PAGE

Paul C. Saville
9616 Brookmeadow Drive
Vienna, Virginia 22182

8.2 Entire Agreement. This Agreement contains the entire agreement
----------------
between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect
thereto.

8.3. Waiver and Amendments. This Agreement may be amended, modified,
---------------------
superseded, cancelled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed
by the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any right, power or
privilege hereunder, nor any single or partial exercise of any right,
power or privilege hereunder, preclude any other or further exercise
thereof or the exercise of any other right, power or privilege
hereunder.

8.4 Governing Law. This Agreement shall be governed and construed in
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

-------------
accordance with the laws of the Commonwealth of Virginia.

8.5 Assignability. This Agreement, and the Executive's rights and
-------------
obligations hereunder, may not be assigned by the Executive. The
Company shall assign this Agreement and its rights, together with its
obligations, to any entity which will substantially carry on the
business of the Company subject to the Executive's rights set forth in
this Agreement, but the Company shall even after such assignment be
fully liable to the Executive for all obligations set forth herein.

8.6 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same instrument.

11
<PAGE

8.7 Headings. The headings in this Agreement are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of
this Agreement.

8.8 Indemnification. The Company shall indemnify the Executive and hold
---------------
him harmless for any acts or decisions made by him in good faith while
performing services for the Company or its affiliates and shall use
its best efforts to obtain coverage for him under an insurance policy
(whether now in force or hereinafter obtained) during the term of this
Agreement covering the officers and directors of the Company or its
affiliates. The Company will pay all expenses including attorney's
fees, actually and necessarily incurred by the Executive in connection
with any appeal thereon including the cost of court settlement arising
or alleged to arise from his employment by the Company.

9. Arbitration.
-----------

Any controversy or claim arising out of or in connection with this Agreement
shall be settled by arbitration in accordance with the rules then pertaining of
the American Arbitration Association. Such controversies shall be submitted to
three arbitrators, one arbitrator being selected by the Company, one arbitrator
being selected by the Executive, and the third being selected by the two so
selected by the Company and the Executive or, if they cannot agree upon a third,
by the American Arbitration Association. In the event that either the Company
or the Executive, within one month after any notification of any demand for
arbitration hereunder, shall not have selected its arbitrator and given notice
thereof by registered or certified mail to the other, such arbitrator shall be
selected by the American Arbitration Association. Confirmation of any award in
any such arbitration may be held in any court having jurisdiction of the person
against whom such award is rendered. Regardless of the circumstances giving
rise to the need for arbitration, until such arbitration shall be finally
determined and ended, the base salary of the Executive pursuant to Section 3.1,
subject to the provisions of Section 6, shall be paid monthly until the
expiration of the term of this Agreement, and Bonus pursuant to Section 3.2,
subject to the provisions of Section 6, shall be earned and paid in accordance
with Section 3.2 until the expiration of the term of this agreement. If the
results of such

12
<PAGE

arbitration are more favorable to the position taken by the Executive than that
taken by the Company, in the opinion of the arbitrators, then all costs and
expenses incurred by the Executive in connection with such arbitration shall be
paid by the Company.

10. Effective Date.
--------------
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8


This Agreement shall be effective as of January 1, 2001.

IN WITNESS WHEREJF, The parties hereto, intending to be legally bound hereby,
have executed this Agreement as of the day and year first above mentioned.

NVR, INC.


By:___________________________ ________________________________________
PAUL C. SAVILLE

13
</TEXT
</DJCUMENT
<DJCUMENT
<TYPEEX-10.35
<SEQUENCE4
<FILENAME0004.txt
<DESCRIPTIJNEXHIBIT 10.35
<TEXT

<PAGE

EXHIBIT 10.35

EXECUTIJN CJPY,

MASTER REPURCHASE AGREEMENT

Dated as of January 9, 2001

Between:

BEAR STEARNS MJRTGAGE CAPITAL CJRPJRATIJN

and

NVR MJRTGAGE FINANCE INC.

Applicability
- -------------

From time to time the parties hereto may enter into transactions in which
NVR Mortgage Finance Inc. ("Seller") agrees to transfer to Bear Stearns Mortgage
Capital Corporation ("Buyer") Mortgage Loans against the transfer of funds by
Buyer, with a simultaneous agreement by Buyer to transfer to Seller such
Mortgage Loans at a date certain or on demand, against the transfer of funds by
Seller. Each such transaction shall be referred to herein as a "Transaction"
and shall be governed by this Agreement, as the same shall be amended from time
to time.

Definitions
- -----------

"Act of Insolvency", with respect to either Buyer or Seller, (i) the
commencement by such party as debtor of any case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law,
or such party seeking the appointment of a receiver, trustee, custodian or
similar official for such party or any substantial part of its property, or (ii)
the commencement of any such case or proceeding against such party, or another
seeking such an appointment, or the filing against a party of an application for
a protective decree under the provisions of the Securities Investor Protection
Act of 1970, which (A) is consented to or not timely contested by such party,
(B) results in the entry of an order for relief, such an appointment, the
issuance of such a protective decree or the entry of an order having a similar
effect, or (C) is not dismissed within 15 days, (iii) the making by a party of a
general assignment for the benefit of creditors, or (iv) the admission in
writing by a party of such party's inability to pay such party's debts as they
become due;
<PAGE
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8


"Additional Purchased Mortgage Loans", Mortgage Loans provided by Seller to
Buyer pursuant to Paragraph 4(a) hereof;

(a) "Agency" shall refer to GNMA, FNMA or FHLMC, as the case may be;

(b) "Agency Security" shall refer to a GNMA Security, a FNMA Security or a
FHLMC Security;

(c) "BSCI", Bear Stearns & Co. Incorporated;

"Business Day", any day other than a Saturday, Sunday and any day on which banks
located in the State of New York are authorized or required to close for
business;

"Buyer's Margin Amount", with respect to any Transaction as of any date, the
amount obtained by application of a percentage, agreed to by Buyer and Seller
prior to entering into the Transaction and specified in the related
Request/Confirmation, to the Repurchase Price for such Transaction as of such
date;

"Custodian", the custodian named in the Custodial Agreement and any permitted
successor thereto;

"Custodial Agreement", the Custodial Agreement among Buyer, Seller and the
Custodian providing for the custody of records relating to the Purchased
Mortgage Loans;

(d) "FHA", the Federal Housing Administration;

(e) "FHLMC", the Federal Home Loan Mortgage Corporation;

(f) "FHLMC Guide", the Freddie Mac Sellers' and Servicers' Guide, as such
Guide may hereafter from time to time be amended;

(g) "FHLMC Security", a Mortgage Participation Certificate issued and
guaranteed by FHLMC and backed by a pool of Mortgage Loans;

(h) "FNMA", the Federal National Mortgage Association;

(i) "FNMA Guide", the Fannie Mae MBS Selling and Servicing Guide, as such
Guide may hereafter from time to time be amended;

(j) "FNMA Security", a Guaranteed Mortgage Pass-Through Certificate issued
and guaranteed by FNMA and backed by a pool of Mortgage Loans;

(k) "GAAP", to generally accepted accounting principals consistently
applied.

(l) "GNMA", the Government National Mortgage Association;

(m) "GNMA Guide", the GNMA Mortgage-Backed Securities Guide, as such Guide
may hereafter from time to time be amended;

(n) "GNMA Security", a fully-modified pass-through mortgage-backed
certificate guaranteed by GNMA and backed by a pool of Mortgage Loans;

(o) "Guide", the GNMA Guide, the FNMA Guide or the FHLMC Guide, as

2
<PAGE

applicable;

"Income", with respect to any Mortgage Loan at any time, any principal thereof
then payable and all payments of interest and principal together with other
distributions thereon or proceeds thereof;

"Loan Schedule", a schedule of Mortgage Loans identifying each Mortgage Loan:
(1) in the case of all Mortgage Loans, by Seller's loan number, Mortgagor's name
and address (including the state and zip code) of the mortgaged property,
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 88

whether such Mortgage Loan bears a fixed or adjustable interest rate, the loan-
to-value ratio, the outstanding principal amount as of a specified date, the
initial interest rate borne by such Mortgage Loan, the original principal
balance thereof, the current scheduled monthly payment of principal and
interest, the maturity of the related Note, the property type, the occupancy
status, the appraised value, the original term to maturity and whether or not
the Mortgage Loan (including the related Note) has been modified; and (2) in the
case of adjustable rate Mortgage Loans, the interest rate borne by such Mortgage
Loan on the Purchase Date, the index and applicable determination date for each
adjustment period, the gross margin, the payment adjustment period (in months),
months to next payment adjustment, periodic payment adjustment cap, lifetime
payment adjustment cap, lifetime payment cap, interest rate adjustment, periodic
interest adjustment cap, lifetime interest rate adjustment, cap amount paid to
date, credit grade, FICJ score, lien flag, prepay flag/terms, debt to income
ratio, fees charged up front and pre-tax disposable income;

"Margin Deficit", the meaning specified in Paragraph 4(a) hereof;

"Market Value", with respect to any Mortgage Loans as of any date, the fair
market value of such Mortgage Loans on such date as determined by Buyer in its
reasonable business judgment from time to time and at such times as it may elect
in its sole discretion; provided, however, that a Market Value of zero shall be
-------- -------
assigned to (i) any Mortgage Loan that has been delinquent for at least thirty
(30) days, (ii) any Mortgage Loan that has been subject to this Agreement for
more than one hundred and eighty (180) days in aggregate or (iii) any Mortgage
Loan with respect to which there is a breach of a representation or warranty
made by Seller in this Agreement or the Custodial Agreement that materially
adversely affects Buyer's interests hereunder;

"Mortgage", the mortgage, deed of trust or other instrument creating a first or
second lien on an estate in fee simple interest in real property securing a
Note;

"Mortgage Loan", a first lien mortgage loan on single family residential
property consisting of a Note secured by a Mortgage that is intended to back the
Agency Security specified in the related Request/Confirmation;

"Mortgagor", the obligor on a Note;

"Note", the Note or other evidence of indebtedness evidencing the indebtedness
of a Mortgagor under a Mortgage Loan;

"Price Differential", with respect to any Transaction hereunder as of any date,
the aggregate amount obtained by daily application of the Pricing Rate for such

3
<PAGE

Transaction to the Purchase Price for such Transaction on a 360 day per year
basis for the actual number of days during the period commencing on (and
including) the Purchase Date for such Transaction and ending on (but excluding)
the date of determination (reduced by any amount of such Price Differential
previously paid by Seller to Buyer with respect to such Transaction);

"Pricing Rate", the per annum percentage rate for determination of the Price
Differential, which rate shall be specified in the related Request/Confirmation;

"Prime Rate", the prime rate of U.S. money center commercial banks as published
in The Wall Street Journal;

"Purchase Date", the date with respect to each Transaction on which Purchased
Mortgage Loans are sold by Seller to Buyer hereunder;

"Purchase Price", (i) on the Purchase Date, the price at which Purchased
Mortgage Loans are sold by Seller to Buyer hereunder, and (ii) thereafter, such
price decreased by the amount of any cash transferred by Seller to Buyer
pursuant to Paragraph 4(a) hereof;

"Purchased Mortgage Loans", the Mortgage Loans sold by Seller to Buyer in a
Transaction hereunder, and any Mortgage Loans substituted therefor in accordance
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 89

with Paragraph 9 hereof. The term "Purchased Mortgage Loans" with respect to
any Transaction at any time also shall include Additional Purchased Mortgage
Loans delivered pursuant to Paragraph 4(a);

"Replacement Mortgage Loans", the meaning specified in Paragraph 11(e)(ii)
hereof;

"Repurchase Date", the date on which Seller is to repurchase the Purchased
Mortgage Loans from Buyer, including any date determined by application of the
provisions of Paragraphs 3(e) or 11 hereof;

"Repurchase Price", the price at which Purchased Mortgage Loans are to be resold
by Buyer to Seller upon termination of a Transaction, which will be determined
in each case (including Transactions terminable upon demand) as the sum of the
Purchase Price and the Price Differential as of the date of such determination,
increased by any amount determined by the application of the provisions of
Paragraph 11 hereof;

"Request/Confirmation", the request and confirmation substantially in the form
of Exhibit A hereto delivered pursuant to Paragraph 3 hereof;

(p) "Security Release Form" shall refer to (i) Freddie Mac Form 996
(Warehouse Lender Release of Security Interest) in the case of a FHLMC Security,
(ii) Fannie Mae Form 2004 (Security Release Certification) in the case of a FNMA
Security and (iii) Form HUD 11711A (Release of Security Interest) in the case of
a GNMA Security;

(q) "Takeout Assignment" shall refer to an assignment, substantially in
the form of Exhibit C hereto, executed by the Seller in favor of Buyer assigning
all of the Seller's rights under a Takeout Commitment;

4
<PAGE

(r) "Takeout Commitment" shall refer to a trade confirmation from the
Takeout Investor to the Seller confirming the details of a forward trade between
the Takeout Investor and the Seller with respect to one or more Agency
Securities, which trade confirmation shall be valid, binding and in full force
and effect and relate to pools of Mortgage Loans that satisfy the "good delivery
standard" of the Public Securities Association as set forth in the Public
Securities Association Uniform Practices Guide;

(s) "Takeout Investor" shall refer to a securities dealer or other
financial institution, listed in Exhibit F hereto, who has made a Takeout
Commitment. Such list may be modified from time to time by Buyer in its sole
discretion, upon written notice to the Seller, or by the Seller with the written
consent of Buyer. Such amended list shall be delivered by the Seller to the
Custodian;

(t) "VA" shall refer to the Department of Veterans Affairs.

Initiation; Request/Confirmation; Termination; Transactions Jptional
- --------------------------------------------------------------------

Any agreement to enter into a Transaction shall be made in writing at the
initiation of Seller. In the event that Seller desires to enter into a
Transaction hereunder, Seller shall deliver to Buyer prior to 5:00 p.m., New
York City time, on the Business Day prior to the proposed Purchase Date, a
Request/Confirmation complete in every respect except for the signature of an
authorized representative of Buyer. Buyer shall, upon its receipt and approval
thereof, promptly execute and return the signed Request/Confirmation to Seller.

The Request/Confirmation shall describe the Purchased Mortgage Loans in a manner
satisfactory to Buyer (which may be by attaching a Loan Schedule thereto),
identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the Purchase
Price, (iii) the Repurchase Date, unless the Transaction is to be terminable on
demand, (iv) the Pricing Rate or Repurchase Price applicable to the Transaction,
and (v) any additional terms or conditions of the Transaction mutually agreeable
to Buyer and Seller.

Each Request/Confirmation shall be binding upon the parties hereto unless
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

written notice of objection is given by the objecting party to the other party
within one (1) Business Day after Buyer has delivered the completed
Request/Confirmation to Seller.

In the event of any conflict between the terms of a Request/Confirmation and
this Agreement, such Request/Confirmation shall prevail.

In the case of Transactions terminable upon demand, such demand shall be made by
Buyer or Seller, no later than such time as is customary in accordance with
market practice, by telephone or otherwise on or prior to the Business Day on
which such termination will be effective. Jn the date specified in such demand,
or on the date fixed for termination in the case of Transactions having a fixed
term, termination of the Transaction will be effected by resale by Buyer to
Seller or its agent of the Purchased Mortgage Loans and any Income in respect
thereof received by Buyer (and not previously credited or transferred to, or
applied to the obligations of, Seller hereunder) against the transfer of the
Repurchase Price to

5
<PAGE

an account of Buyer.

The adjustment mechanism and the index for any adjustable rate Mortgage Loan
must be satisfactory to Buyer in its sole discretion.

Notwithstanding any provision of this Agreement or the Custodial Agreement to
the contrary, the initiation of each Transaction is subject to the approval of
Buyer in its sole discretion. Buyer may, in its sole discretion, reject any
Mortgage Loan from inclusion in a Transaction hereunder for any reason.

Margin Maintenance
- ------------------

If at any time the aggregate Market Value of all Purchased Mortgage Loans
subject to all Transactions hereunder is less than the aggregate Buyer's Margin
Amount for all such Transactions (a "Margin Deficit"), then Buyer may by notice
to Seller require Seller in such Transactions, at Buyer's option, to transfer to
Buyer cash or additional Mortgage Loans reasonably acceptable to Buyer
("Additional Purchased Mortgage Loans"), so that the cash and aggregate Market
Value of the Purchased Mortgage Loans, including any such Additional Purchased
Mortgage Loans, will thereupon equal or exceed such aggregate Buyer's Margin
Amount.

If the notice to be given by Buyer to Seller under subparagraph (a) above is
given at or prior to 10:00 a.m. New York city time on a Business Day, Seller
shall transfer cash or Additional Purchased Mortgage Loans to Buyer prior to the
close of business in New York City on the date of such notice, and if such
notice is given after 10:00 a.m. New York City time, Seller shall transfer cash
or Additional Purchased Mortgage Loans prior to the close of business in New
York City on the Business Day following the date of such notice.

Any cash transferred pursuant to this Paragraph shall be held by Buyer as though
it were Additional Purchased Mortgage Loans and, unless Buyer shall otherwise
consent, shall not reduce the Repurchase Price of the related Transaction.

Income Payments
- ---------------

Where a particular Transaction's term extends over an Income payment date on the
Mortgage Loans subject to that Transaction, all payments and distributions,
whether in cash or in kind, made on or with respect to the Purchased Mortgage
Loans shall, unless otherwise mutually agreed by Buyer and Seller and so long as
an Event of Default on the part of Seller shall not have occurred and be
continuing, be paid directly to Seller by the related Mortgagor. Buyer shall
not be obligated to take any action pursuant to the preceding sentence to the
extent that such action would result in the creation of a Margin Deficit, unless
prior thereto or simultaneously therewith Seller transfers to Buyer, at Buyer's
option, cash or Additional Purchased Mortgage Loans sufficient to eliminate such
Margin Deficit.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

(u) All payments and distributions, whether in cash or in kind, made on or
with respect to the Agency Securities shall, unless otherwise mutually agreed by
Buyer and the Seller, be paid, delivered or transferred directly to BSGI as
agent

6
<PAGE

for Buyer pursuant to the instructions set forth in Exhibit __.

Security Interest
- -----------------

(v) Each Transaction involving Mortgage Loans is entered into in
contemplation of the issuance of one or more Agency Securities backed by the
related Mortgage Loans. The parties intend that the Seller will act as issuer or
seller and/or servicer with respect to such Agency Securities, as applicable,
and that each Agency Security will be issued in the name of, and delivered to or
upon the order of BSCI.

(w) Although the parties intend that all Transactions hereunder be sales
and purchases and not loans, in the event any such Transactions are deemed to be
loans, Seller shall be deemed to have pledged to Buyer as security for the
performance by Seller of its obligations under each such Transaction, and shall
be deemed to have granted to Buyer a security interest in, all of the Purchased
Mortgage Loans with respect to all Transactions hereunder and all proceeds
thereof. Seller shall pay all fees and expenses associated with perfecting such
security interest including, without limitation, the cost of filing financing
statements under the Uniform Commercial Code and recording assignments of
mortgage as and when required by Buyer in its sole discretion.

Payment and Transfer
- --------------------

Unless otherwise mutually agreed, all transfers of funds hereunder shall be
in immediately available funds. All Mortgage Loans transferred by one party
hereto to the other party shall be transferred by notice to the Custodian to the
effect that the Custodian is now holding for the benefit of the transferee the
related documents and assignment forms delivered to it under the Custodial
Agreement.

Segregation of Documents Relating to Purchased Mortgage Loans
- -------------------------------------------------------------

All documents relating to Purchased Mortgage Loans in the possession of
Seller shall be segregated from other documents and securities in its possession
and shall be identified as being subject to this Agreement. Jwnership of all
Purchased Mortgage Loans shall pass to Buyer and nothing in this Agreement shall
preclude Buyer from engaging in repurchase transactions with the Purchased
Mortgage Loans or otherwise pledging or hypothecating the Purchased Mortgage
Loans, but no such transaction shall relieve Buyer of its obligations to resell
and transfer Purchased Mortgage Loans to Seller pursuant to the terms hereof.

Substitution
- ------------

Seller may, subject to agreement with, acceptance by and upon notice to
Buyer, substitute Mortgage Loans substantially similar to the Purchased Mortgage
Loans (the "Substitute Mortgage Loans") for any Purchased Mortgage Loans. If
Seller gives notice to the Buyer at or prior to 10:00 a.m. New York City time on
a Business Day, Buyer may elect, by the close of business on the Business Day
notice is received or by the close of the next Business Day if notice is given
after 10:00 a.m. New York City time on such day, not to accept such
substitution. In the event such substitution is accepted by Buyer, such
substitution shall be made by Seller's transfer to Buyer of such Substitute
Mortgage Loans and Buyer's transfer to Seller of the Purchased Mortgage Loans
for which substitution is being made, and after such substitution, the
Substitute Mortgage Loans shall be deemed to be Purchased Mortgage Loans. In
the event Buyer elects not to accept such substitution, Buyer shall offer Seller
the right to

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

7
<PAGE

terminate the Transaction.

In the event Seller exercises its right to substitute or terminate under
this Paragraph 9, Seller shall be obligated to pay to Buyer, by the close of the
Business Day of such substitution or termination, as the case may be, an amount
equal to (A) Buyer's actual cost (including all fees, expenses and commissions)
of (i) entering into replacement transactions; (ii) entering into or terminating
hedge transactions; and/or (iii) terminating transactions or substituting
securities in like transactions with third parties in connection with or as a
result of such substitution or termination, and (B) to the extent Buyer
determines not to enter into replacement transactions, the loss incurred by
Buyer directly arising or resulting from such substitution or termination. The
foregoing amounts shall be solely determined and calculated by Buyer in good
faith. Upon the reasonable request of Seller, Buyer will provide reasonable
evidence of the basis of its calculation of such amounts.

Delivery of Additional Documents.

(x) The Seller shall, prior to or simultaneously with the funding of each
Transaction, deliver to Buyer through the Custodian the following
documents:

(i) A fully executed Custody Receipt, and all other applicable
documents required by the Custody Agreement; and

(ii) In the case of a Transaction involving Mortgage Loans that
are intended to back an Agency Security, Takeout Assignments in
blank in an amount at least equal to all Mortgage Loans subject to
this Agreement.

(y) The Seller shall, within thirty (30) days of an Mortgage Loan becoming
subject to this Agreement where such Mortgage Loan is intended to back an Agency
Security, deliver to Buyer (i) a duly authorized and originally executed Takeout
Assignment naming Buyer as the assignee, relating to a pool of Mortgage Loans of
which such Mortgage Loan forms a part and in form and substance satisfactory to
Buyer and (ii) a copy of the related Agency Registration Form in form and
substance satisfactory to Buyer.

(z) The Seller shall, simultaneously with the funding of the initial
Transaction under this Agreement relating to each type of Agency Security and
from time to time thereafter upon the request of Buyer, deliver to Buyer
evidence of the commitment of FHLMC, FNMA or GNMA, as appropriate, pursuant to
which the related Agency Securities shall be issued.

(aa) The Seller shall deliver to Buyer on a weekly basis (or more
frequently if requested by Buyer), an investor commitment report, substantially
in the form attached hereto as Exhibit E, listing the existing commitments of
GNMA, FHLMC and FNMA, as applicable (for securitizations) relating to all
outstanding Request/Confirmations.

(bb) Buyer, simultaneously with the funding of each Transaction involving
Mortgage Loans, shall cause the Custodian to be provided with an executed
Security Release Form appropriate for the related Agency Security indicating
that Buyer releases its interest in the related Mortgage Loans in the case of
securitization of such Mortgage Loans into one or more Agency Securities, upon
the issuance of such Agency Security or Securities. Such form

8
<PAGE

shall be prepared by the Seller and provided to the Custodian on behalf of Buyer
in advance of the date on which delivery thereof is required hereby. The
Custodian shall execute such form on behalf of Buyer.

Representations, Warranties and Covenants
- -----------------------------------------

Buyer and Seller each represents and warrants, and shall on and as of the
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

Purchase Date of any Transaction be deemed to represent and warrant, to the
other that:

it is duly authorized to execute and deliver this Agreement, to enter into the
Transactions contemplated hereunder and to perform its obligations hereunder
and has taken all necessary action to authorize such execution, delivery and
performance;

it will engage in such Transactions as principal (or, if agreed in writing in
advance of any Transaction by the other party hereto, as agent for a disclosed
principal);

the person signing this Agreement on its behalf is duly authorized to do so on
its behalf (or on behalf of any such disclosed principal);

it has obtained all authorizations of any governmental body required in
connection with this Agreement and the Transactions hereunder and such
authorizations are in full force and effect; and

the execution, delivery and performance of this Agreement and the Transactions
hereunder will not violate any law, ordinance, charter, by-law or rule
applicable to it or any agreement by which it is bound or by which any of its
assets are affected.

Seller represents and warrants to Buyer, and shall on and as of the Purchase
Date of any Transaction be deemed to represent and warrant, as follows:

The documents disclosed by Seller to Buyer pursuant to this Agreement are
either original documents or genuine and true copies thereof;

Seller is a separate and independent corporate entity from the Custodian,
Seller does not own a controlling interest in the Custodian either directly or
through affiliates and no director or officer of Seller is also a director or
officer of the Custodian;

None of the Purchase Price for any Mortgage Loan will be used either directly
or indirectly to acquire any security, as that term is defined in Regulation T
of the Regulations of the Board of Governors of the Federal Reserve System,
and Seller has not taken any action that might cause any Transaction to
violate any regulation of the Federal Reserve Board;

Each Mortgage Loan was underwritten in accordance with the written
underwriting standards of Seller furnished by Seller to Buyer, and no change
to such underwriting standards has occurred since the date of the last written
revision to such standards was furnished to Buyer by Seller;

Seller shall be at the time it transfers to Buyer any Mortgage Loans for any
Transaction the legal and beneficial owner of such Mortgage Loans, free of any
lien, security interest, option or encumbrance; and

Seller used no selection procedures that identified the Mortgage Loans
relating to a Transaction as being less desirable or valuable than other
comparable assets in Seller's portfolio on the related Purchase Date.

(i) The Seller is a GNMA-approved issuer, a GNMA-approved servicer a
FHA-approved mortgagee, a VA-approved lender, a FNMA-approved issuer, a
FNMA-approved servicer and a FHLMC-approved seller/servicer in good
standing

9
<PAGE

("Approvals");

(ii) Each Mortgage Loan conforms to the requirements and
specifications (including, without limitation, all representations and
warranties required in respect thereof) set forth in the GNMA Guide, FNMA
Guide or FHLMC Guide, as applicable;

(iii) There exists Takeout Assignments in blank relating to Takeout
Commitments for an amount of Agency Securities at least equal to the
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

aggregate outstanding principal amount of all Mortgage Loans subject to
this Agreement that are not Pooled Mortgage Loans;

(iv) Each and every document, certificate, instrument, insurance
policy, escrow and any other item necessary to satisfy the final delivery
requirements of FHLMC, FNMA or GNMA as required by the FHLMC Guide, the
FNMA Guide or the GNMA Guide, as applicable, for the issuance of the
related Agency Security are in form and substance acceptable to FHLMC, FNMA
or GNMA, as appropriate, and have been delivered to the Custodian;

(v) The Seller has no notice or knowledge of any fact, event or
circumstance whatsoever on the basis of which FHLMC, FNMA or GNMA, as
applicable, may delay the issuance of, or refuse to issue, the related
Agency Security;

(vi) Each copy of the document or documents evidencing the Agency
commitment delivered to Buyer through the Custodian is a true and correct
copy, and such GNMA, FHLMC or FNMA commitment has not been withdrawn,
amended or supplemented except as has been theretofore disclosed to Buyer
in writing;

(vii) Each Mortgage Loan that is intended to back an Agency Security
conforms in all respects with all requirements of the Takeout Commitment
applicable to the Agency Security to be backed by such Mortgage Loans;

(viii) Each Takeout Commitment is a legal, valid and binding
obligation of the Seller enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law);

(ix) Each Takeout Commitment is enforceable by the Seller against
the related Takeout Investor;

(x) Each Takeout Commitment is, by virtue of the related Takeout
Assignment, enforceable by Buyer against the related Takeout Investor; and

(xi) Each Takeout Assignment is a legal, valid and binding
obligation of the Seller enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought
in a proceeding in equity or at law).

Seller makes the representations and warranties set forth at Exhibit B with
respect to the Mortgage Loans as of the related Purchase Date.

Seller covenants with Buyer, from and after the date hereof, as follows:

(xii) The Seller shall immediately notify Buyer if any Approvals are
withdrawn or modified;

10
<PAGE

(xiii) In the case of a Transaction involving Mortgage Loans that
will back an Agency Security, the Seller shall not alter or amend the
Agency Registration Form relating to such Transaction following the initial
preparation thereof without the express approval of Buyer.

(xiv) Without Buyer's express prior written approval, the Seller
shall not execute, in favor of any third party other than Buyer or BSGI,
any assignment of rights held or purportedly held by the Seller under a
Takeout Commitment;

Seller shall immediately notify Buyer if an Event of Default shall have
occurred;

Seller shall deliver to Buyer a current Loan Schedule with respect to all
Mortgage Loans subject to this Agreement with such frequency as Buyer may
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

require but in no event less frequently than weekly; and

No Mortgage Loan shall be subject to this Agreement for more than one hundred
and eighty (180) days in aggregate.

Seller shall, at its own expense, register the Mortgage Loans with MERS and
prepare and send, or cause to be prepared and sent, for recordation an
individual assignment of each Mortgage Loan to MERS in a form acceptable under
the applicable Agency Guide and satisfactory to Buyer.

In the event that MERS is no longer the mortgagee of record, Seller shall
assign each Mortgage to such entity as Buyer shall require, in its sole
discretion.

Events of Default; Event of Termination
- ---------------------------------------

The following events shall constitute events of default (each an "Event of
Default") hereunder with respect to Buyer or Seller, as applicable:

Seller fails to repurchase or Buyer fails to transfer Purchased Mortgage Loans
upon the applicable Repurchase Date pursuant to the terms hereof;
Seller or Buyer fails, after one (1) Business Day's notice, to comply with
Paragraph 4 hereof;
An Act of Insolvency occurs with respect to Seller or Buyer or any controlling
entity thereof;

Any representation or warranty made by Seller or Buyer shall have been
incorrect or untrue in any material respect when made or repeated or deemed to
have been made or repeated; provided, however, that in the case of
-------- -------
representations and warranties made with respect to the Purchased Mortgage
Loans, such circumstance shall not constitute an Event of Default if, after
determining the Market Value of the Purchased Mortgage Loans without taking
into account the Purchased Mortgage Loans with respect to which such
circumstance has occurred, no other Event of Default shall have occurred and
be continuing;

Any covenant shall have been breached in any material respect; provided,
--------
however, that in the case of covenants made with respect to the Purchased
-------
Mortgage Loans, such circumstance shall not constitute an Event of Default if,
after determining the Market Value of the Purchased Mortgage Loans without
taking into account the Purchased Mortgage Loans with respect to which such
circumstance has occurred, no other Event of Default shall have occurred and
be continuing;

Buyer shall have reasonably determined that Seller is or will be unable to
meet its commitments under this Agreement, shall have notified Seller of such
determination and Seller shall not have responded with appropriate information
to the contrary to the

11
<PAGE

satisfaction of Buyer within twenty-four (24) hours;

This Agreement shall for any reason cease to create a valid, first priority
security interest in any of the Purchased Mortgage Loans purported to be
covered hereby;

A final judgment by any competent court in the United States of America for
the payment of money in an amount of at least $100,000 is rendered against
Seller, and the same remains undischarged for a period of sixty (60) days
during which execution of such judgment is not effectively stayed;

Any event of default or any event which with notice, the passage of time or
both shall constitute an event of default shall occur and be continuing under
any repurchase or other financing agreement for borrowed funds or indenture
for borrowed funds by which Seller is bound or affected shall occur and be
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

continuing;

In the judgment of Buyer a material adverse change shall have occurred in the
business, operations, properties, prospects or condition (financial or
otherwise) of Seller;

Seller shall be in default with respect to any normal and customary covenants
under any debt contract or agreement, any servicing agreement or any lease to
which it is a party, which default could materially adversely affect the
financial condition of Seller (which covenants include, but are not limited
to, an Act of Insolvency of Seller or the failure of Seller to make required
payments under such contract or agreement as they become due);

Seller shall fail to promptly notify Buyer of (i) the acceleration of any debt
obligation or the termination of any credit facility of Seller; (ii) the
amount and maturity of any such debt assumed after the date hereof; (iii) any
adverse developments with respect to pending or future litigation involving
Seller; and (iv) any other developments which might materially and adversely
affect the financial condition of Seller; or

Seller shall have failed to comply in any material respect with its
obligations under the Custodial Agreement.

If an Event of Default shall have occurred and be continuing, then, at the
option of the nondefaulting party, exercised by written notice to the defaulting
party (which option shall be deemed to have been exercised, even if no notice is
given, immediately upon the occurrence of an Act of Insolvency), the Repurchase
Date for each Transaction hereunder shall be deemed immediately to occur.

In all Transactions in which the defaulting party is Seller, if Buyer is deemed
to have exercised the option referred to in subparagraph (b) of this Paragraph,
(i) Seller's obligations hereunder to repurchase all Purchased Mortgage Loans in
such Transactions shall thereupon become immediately due and payable, (ii) to
the extent permitted by applicable law, the Repurchase Price with respect to
each such Transaction shall be increased by the aggregate amount obtained by
daily application of (x) the greater of the Pricing Rate for such Transaction
and the Prime Rate to (y) the Repurchase Price for such Transaction as of the
Repurchase Date as determined pursuant to subparagraph (b) of this Paragraph
(decreased as of any day by (A) any amounts retained by Buyer with respect to
such Repurchase Price pursuant to clause (iii) of this subparagraph, (B) any
proceeds from the sale of Purchased Mortgage Loans pursuant to subparagraph
(e)(i) of this Paragraph, and (C) any amounts credited to the account of Seller
pursuant to subparagraph (f) of this Paragraph) on a 360 day per year basis for

12
<PAGE

the actual number of days during the period from and including the date of the
Event of Default giving rise to such option to but excluding the date of payment
of the Repurchase Price as so increased, (iii) all Income paid after such
exercise or deemed exercise shall be payable to and retained by Buyer applied to
the aggregate unpaid Repurchase Prices owed by Seller, and (iv) Seller shall
immediately deliver or cause the Custodian to deliver to Buyer any documents
relating to Purchased Mortgage Loans subject to such Transactions then in
Seller's possession.

In all Transactions in which the defaulting party is Buyer, upon tender by
Seller of payment of the aggregate Repurchase Prices for all such Transactions,
Buyer's right, title and interest in all Purchased Mortgage Loans subject to
such Transactions shall be deemed transferred to Seller, and Buyer shall deliver
or cause the Custodian to deliver all documents relating to such Purchased
Mortgage Loans to Seller.

After one (1) Business Day's notice to the defaulting party (which notice need
not be given if an Act of Insolvency shall have occurred, and which may be the
notice given under subparagraph (b) of this Paragraph or the notice referred to
in clause (ii) of the first sentence of subparagraph (a) of this Paragraph), the
nondefaulting party may:

as to Transactions in which the defaulting party is Seller, (A) immediately
sell on a servicing released or servicing retained basis as Buyer deems
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

desirable, in a recognized market at such price or prices as Buyer may in its
sole discretion deem satisfactory, any or all Purchased Mortgage Loans subject
to such Transactions and apply the proceeds thereof to the aggregate unpaid
Repurchase Prices and any other amounts owing by Seller hereunder or (B) in
its sole discretion elect, in lieu of selling all or a portion of such
Purchased Mortgage Loans, to give Seller credit for such Purchased Mortgage
Loans in an amount equal to the Market Value therefor on such date against the
aggregate unpaid Repurchase Prices and any other amounts owing by Seller
hereunder; and

as to Transactions in which the defaulting party is Buyer, (A) purchase
mortgage loans ("Replacement Mortgage Loans") having substantially the same
outstanding principal amount, maturity and interest rate as any Purchased
Mortgage Loans that are not transferred by Buyer to Seller as required
hereunder or (B) in its sole discretion elect, in lieu of purchasing
Replacement Mortgage Loans, to be deemed to have purchased Replacement
Mortgage Loans at the price therefor on such date, calculated as the average
of the prices obtained from three (3) nationally recognized registered
broker/dealers that buy and sell comparable mortgage loans in the secondary
market.

As to Transactions in which the defaulting party is Buyer, Buyer shall be liable
to Seller (i) with respect to Purchased Mortgage Loans (other than Additional
Purchased Mortgage Loans), for any excess of the price paid (or deemed paid) by
Seller for Replacement Mortgage Loans therefor over the Repurchase Price for
such Purchased Mortgage Loans and (ii) with respect to Additional Purchased
Mortgage Loans, for the price paid (or deemed paid) by Seller for the
Replacement Mortgage Loans therefor. In addition, Buyer shall be liable to
Seller for interest on such remaining liability with respect to each such
purchase (or

13
<PAGE

deemed purchase) of Replacement Mortgage Loans from the date of such purchase
(or deemed purchase) until paid in full by Buyer. Such interest shall be at a
rate equal to the greater of the Pricing Rate for such Transaction or the Prime
Rate.

For purposes of this Paragraph 11, the Repurchase Price for each Transaction
hereunder in respect of which the defaulting party is Buyer shall not increase
above the amount of such Repurchase Price for such Transaction determined as of
the date of the exercise or deemed exercise by Seller of its option under
subparagraph (b) of this Paragraph.

The defaulting party shall be liable to the nondefaulting party for the amount
of all reasonable legal or other expenses incurred by the nondefaulting party in
connection with or as a consequence of an Event of Default, together with
interest thereon at a rate equal to the greater of the Pricing Rate for the
relevant Transaction or the Prime Rate. Expenses incurred in connection with an
Event of Default shall include without limitation those costs and expenses
incurred by the nondefaulting party as a result of the early termination of any
repurchase agreement or reverse repurchase agreement entered into by the
nondefaulting party in connection with the Transaction then in default.

The nondefaulting party shall have, in addition to its rights hereunder, any
rights otherwise available to it under any other agreement or applicable law.

At the option of Buyer, exercised by written notice to Seller, the Repurchase
Date for any or all Transactions shall be deemed to immediately occur in the
event that the senior debt obligations or short-term debt obligations of Bear
Stearns & Co. Inc. shall be rated below the four highest generic grades (without
regard to any pluses or minuses reflecting gradations within such generic
grades) by any nationally recognized statistical rating organization.

The exercise by any party of remedies after the occurrence of an Event of
Default shall be conducted in a commercially reasonable manner.

Servicing of the Purchased Mortgage Loans
- -----------------------------------------

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 98

The parties hereto agree and acknowledge that, notwithstanding the purchase and
sale of the Purchased Mortgage Loans contemplated hereby, Seller shall service
the Purchased Mortgage Loans for the benefit of Buyer and, if Buyer shall
exercise its rights to sell the Purchased Mortgage Loans pursuant to this
Agreement prior to the related Repurchase Date, Buyer's assigns; provided,
--------
however, that the obligation of Seller to service Purchased Mortgage Loans for
- -------
the benefit of Buyer as aforesaid shall cease upon the payment to Buyer of the
Repurchase Price therefor.

The Seller shall service and administer the Mortgage Loans in accordance with
prudent mortgage loan servicing standards and procedures generally accepted in
the mortgage banking industry and in accordance with the standards incorporated
(with respect to the GNMA securitization program) the GNMA Guide or (with
respect to the FNMA securitization program) the FNMA Guide or (with respect to
the FHLMC securitization program) the FHLMC Guide; provided,
--------

14
<PAGE

however, that the Seller shall at all times comply with applicable law and FHA
- -------
regulations and VA regulations so that the FHA insurance, VA guarantee or any
other applicable insurance or guarantee, if any, in respect of any Mortgage Loan
is not voided or reduced. The Seller shall at all times maintain accurate and
complete records of its servicing of the Mortgage Loans. Seller will provide
Buyer with monthly reports, substantially identical in form to FNMA's standard
form of remittance report with respect to all Purchased Mortgage Loans then
involved in any Transaction hereunder.

Buyer may, in its sole discretion if an Event of Default shall have occurred and
be continuing, without payment of any termination fee or any other amount to
Seller, (i) sell the Mortgage Loans on a servicing released basis or (ii)
terminate Seller as the servicer of the Purchased Mortgage Loans with or without
cause.

Single Agreement
- ----------------

Buyer and Seller acknowledge that, and have entered hereinto and will enter
into each Transaction hereunder in consideration of and in reliance upon the
fact that, all Transactions hereunder constitute a single business and
contractual relationship and have been made in consideration of each other.
Accordingly, each of Buyer and Seller agrees (i) to perform all of its
obligations in respect of each Transaction hereunder, and that a default in the
performance of any such obligations shall constitute a default by it in respect
of all Transactions hereunder, (ii) that each of them shall be entitled to set
off claims and apply property held by them in respect of any Transaction against
obligations owing to them in respect of any other Transactions hereunder and
(iii) that payments, deliveries and other transfers made by either of them in
respect of any Transaction shall be deemed to have been made in consideration of
payments, deliveries and other transfers in respect of any other Transactions
hereunder, and the obligations to make any such payments, deliveries and other
transfers may be applied against each other and netted.

Notices and Jther Communications
- --------------------------------

Except as otherwise expressly provided herein, all such notices or
communications shall be in writing (including, without limitation, telegraphic,
facsimile or telex communication) or confirmed in writing and such notices and
other communications shall, when mailed, telegraphed, communicated by facsimile
transmission or telexed, be effective when received at the address for notices
for the party to whom such notice or communications is to be given as follows:

if to Seller:

NVR Mortgage Finance Inc.
100 Ryan Court
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 99

Pittsburgh, PA 15205
Attention: Barbara Bubak
Telephone: (412) 429-4576
Telecopy: ____________________

if to Buyer:

Bear Stearns Mortgage Capital Corporation
245 Park Avenue
New York, New York

15
<PAGE

Attention: John M. Garzone
Telephone: (212) 272-3853
Telecopy: (212) 272-2053

Notwithstanding the foregoing, however, that a facsimile transmission shall be
deemed to be received when transmitted so long as the transmitting machine has
provided an electronic confirmation of such transmission, and provided further,
-------- -------
however, that all financial statements delivered shall be hand-delivered or sent
- -------
by first-class mail. Either party may revise any information relating to it by
notice in writing to the other party, which notice shall be effective on the
third business day following receipt thereof.

Payment of Expenses
- -------------------

Seller shall pay on demand all fees and expenses (including, without
limitation, the fees and expenses for legal services of any kind whatsoever)
incurred by Buyer or the Custodian in connection with this Agreement and the
Custodial Agreement and the transactions contemplated hereby and thereby,
whether or not any Transactions are entered into hereunder, including, by way of
illustration and not by way of limitation, the fees and expenses incurred in
connection with (i) the preparation, reproduction and distribution of this
Agreement and the Custodial Agreement and any opinions of counsel, certificates
of officers or other documents contemplated by the aforementioned agreements and
(ii) any Transaction under this Agreement; provided, however, that Seller shall
-------- -------
not be required to pay the fees and expenses of Buyer incurred as a result of
Buyer's default under this Agreement. The obligation of Seller to pay such fees
and expenses incurred prior to or in connection with the termination of this
Agreement shall survive the termination of this Agreement.

Jpinions of Counsel
- -------------------

Seller shall, on the Purchase Date of the first Transaction hereunder and,
upon the request of Buyer, on the Purchase Date of any subsequent Transaction,
cause to be delivered to Buyer, with reliance thereon permitted as to any person
or entity that purchases the Mortgage Loans from Buyer in a repurchase
transaction, a favorable opinion of counsel with respect to the matters set
forth in Exhibit G hereto, in form and substance acceptable to Buyer and its
counsel.

Further Assurances; Additional Information
- ------------------------------------------

Seller shall promptly provide such further assurances or agreements as Buyer may
request in order to effect the purposes of this Agreement.

At any reasonable time, Seller shall permit Buyer, its agents or attorneys, to
inspect and copy any and all documents and data in its possession pertaining to
each Purchased Mortgage Loan that is the subject of such Transaction. Such
inspection shall occur upon the request of Buyer at a mutually agreeable
location during regular business hours and on a date not more than two (2)
Business Days after the date of such request.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Seller agrees to provide Buyer or its agents, from time to time, with such
information concerning Seller of a financial or operational nature as Buyer may
reasonably request.

Seller shall provide Buyer or its agents, with copies of all filings made by or
on

16
<PAGE

behalf of Seller or any entity that controls Seller, with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended,
promptly upon making such filings.

Buyer as Attorney-in-Fact
- -------------------------

Buyer is hereby appointed the attorney-in-fact of Seller for the purpose of
carrying out the provisions of this Agreement and taking any action and
executing any instruments that Buyer may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, Buyer shall have the right and power during the occurrence and
continuation of any Event of Default to receive, endorse and collect all checks
made payable to the order of Seller representing any payment on account of the
principal of or interest on any of the Purchased Mortgage Loans and to give full
discharge for the same.

Appointment of Agent
- --------------------

Buyer hereby appoints Bear Stearns Mortgage Capital Corporation as its
agent for purposes of issuing Requests/Confirmations, determining Market Value,
exercising Buyer's rights under any margin maintenance provision of this
Agreement and such other purposes as Buyer may direct. The appointment of such
agent shall not relieve Buyer of its obligations hereunder.

Wire Instructions
- -----------------

Any amounts to be transferred by Buyer to Seller hereunder shall be sent by wire
transfer in immediately available funds to the account of Seller at:

US BANK, N.A.
ABA No. 091000022
Ref.: NVR Mortgage Collateral Account
Acct. No. 104756234357

Any amounts to be transferred by Seller to Buyer hereunder shall be sent by wire
transfer in immediately available funds to the account of Buyer at:

BANK JNE, NATIJNAL ASSJCIATIJN
Acct. No.: 5801230
ABA. No.: 071000013
Attn: John Garzone

Amounts received after 3:00 p.m., New York City time, on any Business Day shall
be deemed to have been paid and received on the next succeeding Business Day.

Entire Agreement; Severability
- ------------------------------

This Agreement shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions. Each
provision and agreement herein shall be treated as separate and independent from
any other provision or agreement herein and shall be enforceable notwithstanding
the unenforceability of any such other provision or agreement.

17
<PAGE

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Non-assignability; Termination
- ------------------------------

The rights and obligations of the parties under this Agreement and under any
Transaction shall not be assigned by either party without the prior written
consent of the other party. Subject to the foregoing, this Agreement and any
Transactions shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns.

This Agreement and all Transactions outstanding hereunder shall terminate
automatically without any requirement for notice on the date occurring three
hundred and sixty-four (364) days after the date as of which this Agreement is
entered into; provided, however, that this Agreement and any Transaction
outstanding hereunder may be extended by mutual agreement of Buyer and Seller;
and provided further, however, that no such party shall be obligated to agree to
such an extension.

Counterparts
- ------------

This Agreement may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.

Governing Law
- -------------

This Agreement shall be governed by the laws of the State of New York
without giving effect to the conflict of law principles thereof.

No Waivers, Etc.
- ----------------

No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any remedy
hereunder by any party shall constitute a waiver of its right to exercise any
other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the
parties hereto. Without limitation on any of the foregoing, the failure to give
a notice pursuant to subparagraph 4(a) hereof will not constitute a waiver of
any right to do so at a later date.

Use of Employee Plan Assets
- ---------------------------

If assets of an employee benefit plan subject to any provision of the Employee
Retirement Income Security Act of 1974 ("ERISA") are intended to be used by
either party hereto (the "Plan Party") in a Transaction, the Plan Party shall so
notify the other party prior to the Transaction. The Plan Party shall represent
in writing to the other party that the Transaction does not constitute a
prohibited transaction under ERISA or is otherwise exempt therefrom, and the
other party may proceed in reliance thereon but shall not be required so to
proceed.

Subject to the last sentence of subparagraph (a) of this Paragraph, any such
Transaction shall proceed only if Seller furnishes or has furnished to Buyer its
most recent available audited statement of its financial condition and its most
recent subsequent unaudited statement of its financial condition.

18
<PAGE

By entering into a Transaction pursuant to this Paragraph, Seller shall be
deemed (i) to represent to Buyer that since the date of Seller's latest such
financial statements, there has been no material adverse change in Seller's
financial condition which Seller has not disclosed to Buyer, and (ii) to agree
to provide Buyer with future audited and unaudited statements of its financial
condition as they are issued, so long as it is a Seller in any outstanding
Transaction involving a Plan Party.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Intent
- ------

The parties intend and acknowledge that each Transaction is a "repurchase
agreement" as that term is defined in Section 101 of Title 11 of the United
States Code, as amended (except insofar as the type of Mortgage Loans subject to
such Transaction or the term of such Transaction would render such definition
inapplicable), and a "securities contract" as that term is defined in Section
741 of Title 11 of the United States Code, as amended.

It is understood that either party's right to liquidate Mortgage Loans delivered
to it in connection with Transactions hereunder or to exercise any other
remedies pursuant to Paragraph 11 hereof, is a contractual right to liquidate
such Transaction as described in Sections 555 and 559 of Title 11 of the United
States Code, as amended.

Disclosure Relating to Certain Federal Protections
- --------------------------------------------------

The parties acknowledge that they have been advised that:

(a) in the case of Transactions in which one of the parties is a
broker or dealer registered with the Securities and Exchange Commission
("SEC") under Section 15 of the Securities Exchange Act of 1934 ("1934
Act"), the Securities Investor Protection Corporation has taken the
position that the provisions of the Securities Investor Protection Act of
1970 ("SAPPY") do not protect the other party with respect to any
Transaction hereunder;

(b) in the case of Transactions in which one of the parties is a
government securities broker or a government securities dealer registered
with the SEC under Section 15C of the 1934 Act, SAPPY will not provide
protection to the other party with respect to any Transaction hereunder;
and

(c) in the case of Transactions in which one of the parties is a
financial institution, funds held by the financial institution pursuant to
a Transaction hereunder are not a deposit and therefore are not insured by
the Federal Deposit Insurance Corporation, the Federal Savings and Loan
Insurance Corporation or the National Credit Union Share Insurance Fund, as
applicable.

BEAR STEARNS MJRTGAGE CAPITAL NVR MJRTGAGE FINANCE INC.
CJRPJRATIJN

By: ____________________________ By: ___________________________

19
<PAGE

Title: __________________________ Title: _______________________

Date: ___________________________ Date: ________________________

20
<PAGE

EXHIBIT A

REQUEST/CJNFIRMATIJN

TJ: NVR Mortgage Finance Inc.
100 Ryan Court
Pittsburgh, PA 15205
Attention: Barbara Bubak

FRJM: Bear Stearns Mortgage Capital Corporation

RE: Request/Confirmation under Master Repurchase Agreement, dated as of
January 9, 2001, between Bear Stearns Mortgage Capital Corporation and
NVR Mortgage Finance Inc.
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page


AGENCY (Check one): FNMA FHLMC GNMA

Bear Stearns Mortgage Capital Corporation ("Buyer") is pleased to confirm your
sale and its purchase of the Mortgage Loans described below and listed on the
attached Loan Schedule pursuant to the above-referenced Master Repurchase
Agreement under the following terms and conditions:

Additional Aggregate

JRIG. PRINCIPAL AMJUNT JF MJRTGAGE LJANS: _____________

CURRENT PRINCIPAL AMJUNT JF MJRTGAGE LJANS: _____________

PURCHASE DATE: ____________ _____________

REPURCHASE DATE: ____________ _____________

PURCHASE PRICE: ____________ _____________

PRICING RATE: ____________ _____________

MINIMUM REQUIRED MARGIN PERCENTAGE: ____________ _____________

PRICE DIFFERENTIAL DUE DATE: ____________ _____________


A-1
<PAGE

The Master Repurchase Agreement is incorporated by reference into this
Request/Confirmation and made a part hereof as if it were fully set forth
herein. All capitalized terms used herein but not otherwise defined shall have
the meanings specified in the Master Repurchase Agreement.

BEAR STEARNS MJRTGAGE CAPITAL
CJRPJRATIJN


BY: ___________________________
NAME:__________________________
TITLE:_________________________


A-2
<PAGE

ATTACHMENT I

TJ EXHIBIT A

REQUEST/CJNFIRMATIJN FJR MJRTGAGE LJANS
=======================================


Request No. ___

Date: ________

<TABLE
<CAPTIJN
Amount
Funded
to
Product Wire Loan Borrower Loan Purchase Qualified Market Takeout Note
Commitment Takeout Maturity
Investor Type Date Number Last Amount Price Jriginator Value Date Rate
Number Price Date
- ----------- ------- ---- ------ -------- ------ -------- ---------- ------ ------- ---- ---
------- ------- --------
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

<S <C <C <C <C <C <C <C <C <C <C <C
<C <C





TJTALS:
</TABLE

NVR MJRTGAGE FINANCE INC.

By: ____________________________________________________
Title: _________________________________________________
Date:___________________________________________________


Amount to be
$ ________________ funded by Buyer:


A-1
<PAGE

EXHIBIT B


REPRESENTATIJNS AND WARRANTIES
RELATING TJ THE PURCHASED MJRTGAGE LJANS

(i) The information with respect to each Mortgage Loan set forth in the
related Loan Schedule is true and correct;

(ii) All documentation required to be delivered to the Custodian under
the Custodial Agreement has been so delivered;

(iii) Each Purchased Mortgage Loan is a Mortgage;

(iv) Each mortgaged property is improved by a single (one-to-four)
family residential dwelling;

(v) No more than 5% by original principal balance of the Purchased
Mortgage Loans had loan-to-value ratios in excess of 85%, except for those
Purchased Mortgage Loans which are FHA Loans, which had loan-to-value ratios of
no more than 100%;

(vi) Each Purchased Mortgage Loan is being serviced by Seller in
accordance with the terms of this Agreement;

(vii) The Note related to each Purchased Mortgage Loan bears a fixed or
adjustable interest rate;

(viii) Each Mortgage is a valid and subsisting first of record (or is in
the process of being recorded) on the mortgaged property subject in all cases to
the exceptions to title set forth in the title insurance policy or attorney's
opinion of title, with respect to the related Mortgage Loan, which exceptions
are generally acceptable to banking institutions in connection with their
regular mortgage lending activities, and such other exceptions to which similar
properties are commonly subject and which do not individually, or in the
aggregate, materially and adversely affect the benefits of the security intended
to be provided by such Mortgage;

(ix) Immediately prior to the transfer and assignment of the Mortgage
Loans by Seller to Buyer as contemplated by this Agreement, Seller held good and
indefeasible title to, and was the sole owner of, each Mortgage Loan (including
the related Note) conveyed by Seller subject to no liens, charges, mortgages,
encumbrances or rights of others or other liens which will be released
simultaneously with such transfer and assignment; and immediately upon the
transfer of the Purchased Mortgage Loans as contemplated in this Agreement,
Buyer will be the sole owner of each Purchased Mortgage Loan subject to no
liens, charges, mortgages, encumbrances or rights of others except as set forth
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

in paragraph (ix) or other liens which will be released simultaneously with such
transfer;

B-1
<PAGE

(x) No Purchased Mortgage Loan is thirty (30) days or more delinquent;

(xi) There is no delinquent tax or assessment lien on any mortgaged
property, and each mortgaged property is free of substantial damage and is in
good repair;

(xii) There is no valid and enforceable offset, defense or counterclaim
to any Note or Mortgage, including the obligation of the related Mortgagor to
pay the unpaid principal of or interest on such Note;

(xiii) There is no mechanics' lien or claim for work, labor or material
affecting any mortgaged property which is or may be a lien prior to, or equal
with, the lien of the related Mortgage except those which are insured against by
any title insurance policy referred to in paragraph (xvi) below;

(xiv) Each Purchased Mortgage Loan at the time it was made complied in
all material respects with applicable state and federal laws and regulations,
including, without limitation, the federal Truth-in-Lending Act (including the
Riegle Community Development Act of 1994) and other consumer protection laws,
usury, equal credit opportunity, disclosure and recording laws;

(xv) With respect to each Purchased Mortgage Loan either (a) an
attorney's opinion of title has been obtained but no title policy has been
obtained or (b) a lender's title insurance policy, issued in standard American
Land Title Association form by a title insurance company authorized to transact
business in the state in which the related mortgaged property is situated, in an
amount at least equal to the original balance of such Purchased Mortgage Loan,
insuring the mortgagee's interest under the related Mortgage Loan as the holder
of a valid first mortgage lien of record on the real mortgaged property
described in the related Mortgage, as the case may be, subject only to
exceptions of the character referred to in paragraph (ix) above, was effective
on the date of the origination of such Mortgage Loan, and such policy is valid
and thereafter such policy shall continue in full force and effect;

(xvi) The improvements upon each mortgaged property are covered by a
valid and existing hazard insurance policy with a carrier generally acceptable
to Seller that provides for fire and extended coverage representing coverage not
less than the least of (A) the outstanding principal balance of the related
Purchased Mortgage Loan, (B) the minimum amount required to compensate for
damage or loss on a replacement cost basis or (C) the full insurable value of
the mortgaged property;

(xvii) If any mortgaged property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards, a flood insurance policy in a form meeting the requirements of the
current guidelines of the Flood Insurance Administration is in effect with
respect to such mortgaged property with a carrier generally acceptable to Seller
in an amount representing coverage not less than the least of (A) the
outstanding principal balance of the related Purchased Mortgage Loan, (B) the
minimum amount required to compensate for damage or loss on a replacement cost
basis or (C) the maximum amount of insurance that is available under the Flood
Disaster Protection Act of 1973;

B-2
<PAGE

(xviii) Each Mortgage and Note is the legal, valid and binding obligation
of the maker thereof and is enforceable in accordance with its terms, except
only as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity (whether
considered in a proceeding or action in equity or at law), and all parties to
each Purchased Mortgage Loan had full legal capacity to execute all documents
relating to such Mortgage Loan and convey the estate therein purported to be
conveyed;
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page


(xix) Seller has caused and will cause to be performed any and all acts
required to be performed to preserve the rights and remedies of Buyer in any
insurance policies applicable to any Purchased Mortgage Loans transferred by
Seller including, without limitation, any necessary notifications of insurers,
assignments of policies or interests therein, and establishments of co-insured,
joint loss payee and mortgagee rights in favor of Buyer;

(xx) No more than 10% of the aggregate original outstanding principal
balance will be secured by mortgaged properties located within any single zip
code area;

(xxi) Each original Mortgage was recorded or is in the process of being
recorded, and all subsequent assignments of the original Mortgage have been
registered with MERS and have been prepared and delivered for recordation with
MERS. In the event that MERS is not being used, all subsequent assignments of
the original Mortgage have been prepared and delivered for recordation or have
been recorded in the appropriate jurisdictions wherein such recordation is
necessary to perfect the lien thereof as against creditors of or purchasers from
Seller;

(xxii) The terms of each Note and each Mortgage have not been impaired,
altered or modified in any respect, except by a written instrument which has
been recorded, if necessary, to protect the interest of Buyer and which has been
delivered to the Custodian. The substance of any such alteration or modification
is reflected on the related Loan Schedule;

(xxiii) The proceeds of each Purchased Mortgage Loan have been fully
disbursed, and there is no obligation on the part of the mortgagee to make
future advances thereunder; any and all requirements as to completion of any on-
site or off-site improvements and as to disbursements of any escrow funds
therefor have been complied with; all costs, fees and expenses incurred in
making or closing or recording such Mortgage Loans were paid;

(xxiv) The related Note is not and has not been secured by any collateral,
pledged account or other security except the lien of the corresponding Mortgage;

(xxv) No Purchased Mortgage Loan has a shared appreciation feature, or
other contingent interest feature;

(xxvi) Each mortgaged property is located in the state identified in the
respective Loan Schedule and consists of one or more parcels of real mortgaged
property with a residential dwelling erected thereon;

B-3
<PAGE

(xxvii) Each Mortgage contains a provision for the acceleration of the
payment of the unpaid principal balance of the related Purchased Mortgage Loan
in the event the related mortgaged property is sold without the prior consent of
the mortgagee thereunder;

(xxviii) Any advances made after the date of origination of a Purchased
Mortgage Loan have been consolidated with the outstanding principal amount
secured by the related Mortgage, and the secured principal amount, as
consolidated, bears a single interest rate and single repayment term reflected
on the respective Loan Schedule; the consolidated principal amount does not
exceed the original principal amount of the related Purchased Mortgage Loan; no
Note permits or obligates Seller to make future advances to the related
Mortgagor at the option of the Mortgagor;

(xxix) There is no proceeding pending or threatened for the total or
partial condemnation of any mortgaged property, nor is such a proceeding
currently occurring, and each mortgaged property is undamaged by waste, fire,
water, flood, earthquake or earth movement;

(xxx) All of the improvements which were included for the purposes of
determining the appraised value of any mortgaged property lie wholly within the
boundaries and building restriction lines of such mortgaged property, and no
improvements on adjoining properties encroach upon such mortgaged property, and
are stated in the title insurance policy and affirmatively insured;
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page


(xxxi) No improvement located on or being part of any mortgaged property
is in violation of any applicable zoning law or regulation; all inspections,
licenses and certificates required to be made or issued with respect to all
occupied portions of each mortgaged property and, with respect to the use and
occupancy of the same, including but not limited to certificates of occupancy
and fire underwriting certificates, have been made or obtained from the
appropriate authorities and such mortgaged property is lawfully occupied under
the applicable law;

(xxxii) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in such Mortgage, and no fees or
expenses are or will become payable by the owner of the Mortgage Loan to the
trustee under the deed of trust, except in connection with a trustee's sale
after default by the related Mortgagor;

(xxxiii) Each Mortgage contains customary and enforceable provisions which
render the rights and remedies of the holder thereof adequate for the
realization against the related mortgaged property of the benefits of the
security, including (A) in the case of a Mortgage designated as a deed of trust,
by trustee's sale and (B) otherwise by judicial foreclosure. There is no
homestead or other exemption other than any applicable Mortgagor redemption
rights available to the related Mortgagor which would materially interfere with
the right to sell the related mortgaged property at a trustee's sale or the
right to foreclose the related Mortgage;

(xxxiv) There is no default, breach, violation or event of acceleration
existing under any Mortgage or the related Note and no event which, with the
passage of time or with notice and the

B-4
<PAGE

expiration of any grace or cure period, would constitute a default, breach,
violation or event of acceleration; and Seller has not waived any default,
breach, violation or event of acceleration;

(xxxv) No instrument of release or waiver has been executed in
connection with any Purchased Mortgage Loan, and no Mortgagor has been released,
in whole or in part, except in connection with an assumption agreement which has
been approved by the primary mortgage guaranty insurer, if any, and which has
been delivered to the Custodian;

(xxxvi) Each Purchased Mortgage Loan was originated based upon a full
appraisal, which included an interior inspection of the subject mortgaged
property unless such Mortgage Loan was subject to FNMA or FHLMC underwriting
guides, in which case the Purchased Mortgage Loan conformed to such guidelines;

(xxxvii) No more than 15% of the aggregate original outstanding principal
balance is secured by mortgaged properties that are non-owner occupied mortgaged
properties (i.e., investor-owned and vacation);

(xxxviii) There do not exist any hazardous substances, hazard wastes or
solid wastes, as such terms are defined in the Comprehensive Environmental
Response Compensation and Liability Act, the Resource Conservation and Recovery
Act of 1976, or other federal, state or local environmental legislation on any
mortgaged property;

(xxxix) Seller was properly licensed or otherwise authorized, to the
extent required by applicable law, to originate or purchase each Purchased
Mortgage Loan; and the consummation of the transactions herein contemplated,
including, without limitation, the ownership of the Purchased Mortgage Loans by
Buyer will not involve the violation of such laws;

(xl) With respect to each mortgaged property subject to a ground lease
(i) the current ground lessor has been identified and all ground rents which
have previously become due and owing have been paid; (ii) the ground lease term
extends, or is automatically renewable, for at least five (5) years beyond the
maturity date of the related Purchased Mortgage Loan; (iii) the ground lease has
been duly executed and recorded; (iv) the amount of the ground rent and any
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

increases therein are clearly identified in the lease and are for predetermined
amounts at predetermined times; (v) the ground rent payment is included in the
mortgagor's monthly payment as an expense item in determining the qualification
of the mortgagor for such Mortgage Loan; (vi) Buyer has the right to cure
defaults on the ground lease; and (vii) the terms and conditions of the
leasehold do not prevent the free and absolute marketability of the mortgaged
property. The outstanding principal balance of Purchased Mortgage Loans with
related mortgaged properties subject to ground leases does not exceed 10% of the
aggregate original outstanding principal balance;

(xli) Seller has not received a notice of default of any first-lien
Mortgage Loan secured by any mortgaged property which has not been cured by a
party other than Seller;

B-5
<PAGE

(xlii) No Purchased Mortgage Loan is subject to a temporary rate reduction
pursuant to a buydown program;

(xliii) No more than 10% of the aggregate original outstanding principal
balance of the Purchased Mortgage Loans was originated under Seller's non-income
verification program; and

(xliv) The interest rate on each Purchased Mortgage Loan is calculated on
the basis of a year of 360 days with twelve 30-day months.

(xlv) Each Mortgage Loan that is not a FHA Loan or VA Loan with an LTV in
excess of 80% is covered by a Primary Mortgage Insurance Policy which is
disclosed on the Mortgage Loan Schedule attached hereto, and the Primary
Mortgage Insurance Policy is in full force and effect.

(xlvi) With respect to each Mortgage Loan that is a FHA Loan or a VA Loan
is indicated as such on the Mortgage Loan Schedule; the Mortgage Loan is fully
insured by FHA or guaranteed by the VA, as applicable; the FHA insurance or VA
guarantee is in full force and effect; no FHA Loan or VA Loan is subject to any
defect which would diminish or impair such insurance or guarantee; all prior
transfers, if any, of any FHA Loan or VA Loan have been, and the sale to the
Purchaser of any such FHA Loan or VA Loan is, in compliance with applicable law
and the regulations; and no circumstances exist with respect to any such FHA
Loan or VA Loan which would permit FHA or VA to deny the effectiveness of its
insurance or guarantee.

(xlvii) In servicing and administering any FHA Loan or VA Loan, the Seller
has complied with applicable law and regulations, as the same may be amended
from time to time, and has promptly discharged all obligations of the mortgagee
thereunder and under the related Mortgage including the timely giving of notices
thereunder; the full benefit of the insurance or guarantee, as the case may be,
shall inure to the Purchaser; and no reduction or curtailment of principal,
interest or any fees, costs or expenses to be paid by the FHA or VA under the
insurance contract or guarantee shall result from any act or omission of the
Seller.

B-6
<PAGE

EXHIBIT C
---------

TAKEJUT ASSIGNMENT,


___________________("Takeout Investor")
(Address)
Attention: _____________________

Gentlemen:

Attached hereto is a correct and complete copy of your confirmation of
commitment (the "Commitment"), trade-dated ____________, 19__, to purchase
$______________ of ____% ____ year:
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9


(Check Box)

(a) Government National Mortgage Association;

(b) Federal National Mortgage Association; or

(c) Federal Home Loan Mortgage Corporation;

mortgage-backed pass-through securities ("Securities") at a purchase price of
_____________ from __________________. This is to confirm that (i) the
Commitment is in full force and effect, (ii) the Commitment has been assigned to
_____________________ ("Assignee") whose acceptance of such assignment is
indicated below, (iii) you will accept delivery of such Securities directly from
Assignee and (iv) you will pay Assignee for such Securities. Payment will be
made "delivery versus payment (DVP)" to Assignee in immediately available funds.
Assignee shall have the right to require you to fulfill your obligation to
purchase the Securities.

Notwithstanding the foregoing, the obligation to deliver the Securities to
you shall be that of NVR Mortgage Finance Inc. and your sole recourse for the
failure of such delivery shall be against NVR Mortgage Finance Inc..

C-1
<PAGE

If you have any questions, please call ______________________ of the
Assignee at __________________ immediately.

Very truly yours,

NVR MJRTGAGE FINANCE INC.

By:____________________
Title:_________________
Date:__________________

Agreed to:

ASSIGNEE,

By:_____________________
Title:__________________
Date:___________________

C-2
<PAGE

EXHIBIT D
---------

PAYMENT INSTRUCTIJNS FJR AGENCY SECURITIES
==========================================

FED FNMA AND FHLMC SECURITY INSTRUCTIJNS: __________________

__________________

PTC GNMA SECURITY INSTRUCTIJNS: __________________


D-1
<PAGE

EXHIBIT E
---------

INVESTJR CJMMITMENT REPJRT
==========================

Mortgage Loans
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

(Securitization)
--------------


<TABLE
<CAPTIJN
Confirmation/ Takeout Investor
Funding Request Trade or Purchasing Delivery MBS Note/Coupon Delivery
Trade Commitment
(Listed by Number) Date Agency Month Type Rate Price Amount
Number Number Reason
------------------ ----- ---------------- ----- ---- ----------- -------- ------ --
---- ---------- ------
<S <C <C <C <C <C <C <C
<C <C <C
</TABLE

E-1
<PAGE

EXHIBIT F
---------

TAKEJUT INVESTJRS
-----------------

F-1
<PAGE

EXHIBIT G

JPINIJN JF CJUNSEL TJ SELLER

1. Seller is duly organized and validly existing as a corporation in good
standing under the laws of the State of __________ and has power and authority
to enter into and perform its obligations under this Agreement and the Custodial
Agreement. Seller is duly qualified to do business and is in good standing in
each jurisdiction in which the character of the business transacted by it
requires such qualification and in which the failure so to qualify would have a
material adverse effect on the business, properties, assets or condition
(financial or other) of Seller and its subsidiaries, considered as a whole.

2. This Agreement and the Custodial Agreement have each been duly
authorized, executed and delivered by Seller, and each constitutes a valid and
legally binding obligation of Seller enforceable against Seller in accordance
with its terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors' rights generally and to general equity principles.

3. No consent, approval, authorization or order of any state or federal
court or government agency or body is required to be obtained by Seller for the
consummation of the transactions contemplated by this Agreement or the Custodial
Agreement.

4. The consummation of any of the transactions contemplated by this
Agreement and the Custodial Agreement will not conflict with, result in a breach
of, or constitute a default under the articles of incorporation or bylaws of
Seller or the terms of any indenture or other agreement or instrument known to
us to which Seller is party or bound, or any order known to such counsel to be
applicable to Seller or any regulations applicable to Seller, of any state or
federal court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over Seller.

5. There is no pending or threatened action, suit or proceeding before
any court or governmental agency, authority or body or any arbitrator involving
Seller or relating to the transaction contemplated by this Agreement or the
Custodial Agreement which, if adversely determined, would have a material
adverse effect on Buyer.

6. Seller is duly registered as a finance company in each state in which
Mortgage Loans were originated, to the extent such registration is required by
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

applicable law.

Each Mortgage Loan will have been endorsed in a manner which satisfies any
requirement of endorsement in order to transfer all right, title and interest in
and to that Mortgage Loan from Seller to Buyer. Each assignment of Mortgage
related to each such Mortgage Loan is in recordable form and is sufficient under
applicable law to validly and effectively transfer all right, title and interest
of Seller to Buyer. This Agreement together with (a) the delivery of such
related Mortgage Loans to Custodian, (b) the endorsement of such Mortgage Loans
to Buyer and (c) the delivery of the

F-2
<PAGE

assignments of Mortgages related to the Mortgage Loans to the Custodian in
recordable form assigning such Mortgages to Buyer, creates a valid, perfected
security interest in such Mortgage Loans in favor of Buyer. Such security
interest will have the same priority and will be subject to the same security
interests and liens as apply to such Mortgage Loans in the hands of Seller.


EXHIBIT 10.36

SECJND AMENDMENT TJ
LJAN AGREEMENT AND
SECJND AMENDMENT TJ
PLEDGE AND SECURITY AGREEMENT

THIS SECJND AMENDMENT TJ LJAN AGREEMENT AND SECJND AMENDMENT TJ PLEDGE AND
SECURITY AGREEMENT (the "Amendment") dated as of September 1, 2000 between NVR
MJRTGAGE FINANCE, INC., a Virginia corporation ("Borrower"), the Lenders party
--------
to the Loan Agreement referred to below ("Lenders"), and U.S. BANK NATIJNAL
ASSJCIATIJN, as agent ("Agent") for the Lenders.

WITNESSETH THAT:

WHEREAS, the Borrower, the Lenders and the Agent are parties to a Loan
Agreement dated as of September 7, 1999, as amended by a Consent, Waiver and
First Amendment to Loan Agreement dated as of November 19, 1999 (as so amended,
the "Loan Agreement"), pursuant to which the Lenders provide the Borrower with a
revolving mortgage warehousing credit facility;

WHEREAS, the Borrower and the Lenders have agreed to amend the Loan
Agreement upon the terms and conditions herein set forth;

NJW, THEREFJRE, for value received, the receipt and sufficiency of which
are hereby acknowledged, the Borrower and the Lenders agree as follows:

1. Certain Defined Terms. Each capitalized term used herein without being
---------------------
defined herein that is defined in the Loan Agreement shall have the meaning
given to it therein.

2. Amendments to Loan Agreement. The Loan Agreement is hereby amended as
----------------------------
follows:

(a) The definition of "Eligible Mortgage Loan" in Section 1.1 of the
----------------------
Loan Agreement is hereby amended to (i) add "or REJ" before the colon at
the end of the second line thereof, (ii) amend clauses (h) and (k) thereof
in their entirety to read as follows:

(h) which, except in the case of an Investment Mortgage Loan or
REJ, has not previously been sold to an Investor and repurchased by
Borrower;

1
<PAGE

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

(k) except in the case of an Investment Mortgage Loan or REJ,
with respect to which no more than 180 days have elapsed since the
original funding of such Mortgage Loan to the Mortgagor;

(iii) add "or REJ" after "Investment Loan" each place it appears therein,
(iv) delete the word "and" at the end of clause (o) thereof, (v) delete the
period at the end of clause (p) thereof and substitute "; and" therefor,
and (vi) add the following clause (q) after clause (p) thereof:

(q) in connection with which, in the case of an Investment
Mortgage Loan that has been converted to REJ, the requirements of
Section 4.08 of the Pledge and Security Agreement have been satisfied.

(b) The definition of "Scheduled Termination Date" in Section 1.1 of
--------------------------
the Loan Agreement is hereby amended in its entirety to read as follows:

"Scheduled Termination Date" means August 31, 2001.
--------------------------

(c) The definition of Swing Advance Limit" in Section 1.1 of the Loan
-------------------
Agreement is hereby amended in its entirety to read as follows:

"Swing Advance Limit" means $45,000,000.
-------------------

(d) Section 2.1(g) of the Loan Agreement is hereby amended in its
entirety read as follows:

(g) Increases. Borrower may from time to time request any Lender
---------
to increase its Commitment, provided that the total Commitment may be
increased to no more than $125,000,000. That increase must be effected
by an amendment executed by Borrower, Agent, and the increasing
Lender. Borrower shall execute and deliver to each such Lender a
Committed Warehouse Note in the stated amount of its new Commitment.
No Lender is obligated to increase its Commitment under any
circumstances, and no Lender's Commitment may be increased except by
its execution of an amendment as stated above. Each new Lender
providing such additional Commitment increase shall be a "Lender"
hereunder, entitled to the rights and benefits, and subject to the
duties, of a Lender under the Loan Documents. All amounts advanced
hereunder pursuant to any such additional Commitment shall be secured
by the Collateral on a pari passu basis with all other amounts
advanced hereunder. In the event the total Commitment is increased,
Borrower shall notify each Lender in writing of such increase. In the
case of a Commitment increase, each Lender's Commitment Percentage
shall be recalculated to reflect the new proportionate share of the
revised total Commitments and the Lender holding an additional
Commitment shall, immediately upon receiving notice from Agent, pay to
the Agent an amount equal to its pro rata share of the Borrowings
outstanding as of such date. All such

2
<PAGE

payments shall reduce ratably the outstanding principal balance of the
Committed Warehouse Notes, shall be distributed by the Agent to the
Lenders for application accordingly, and shall represent Borrowings to
Borrower under the new or increasing Lender's Committed Warehouse
Note. The new or increasing Lender shall be entitled to share ratably
in interest accruing on the balances purchased, at the rates provided
herein for such balances, from and after the date of such payment. All
new Borrowings occurring after an increase of the total Commitments
shall be funded in accordance with each Lender's revised Commitment
Percentage.

(e) Section 2.4 of the Loan Agreement is hereby amended to add the
following subsection (e) at the end thereof:

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

(e) Construction/Lot Fee. Borrower shall pay to the Agent, for
--------------------
the ratable benefit of Lenders, a fee equal to 0.5% per annum of the
average outstanding balance of the Construction/Lot Tranches. Such
fee, accrued through the end of each calendar month, shall be paid on
the fifth day of the following month. The accrued amount of such fee
shall also be payable on the Termination Date. Such fee shall be
computed on the basis of the actual number of days elapsed and a year
of 360 days.

(f) Sections 2.11(b) and (c) of the Loan Agreement are hereby amended
in their entirety to read as follows:

(b) Balance Funded Rate Segment. A Balance Funded Rate Segment
---------------------------
consisting of any portion of a Construction/Lot Loan Tranche shall
bear interest at the rate of 1.25% per annum. A Balance Funded Rate
Segment consisting of any portion of a Gestation Loan Tranche shall
bear interest at the rate of 0.65% per annum. A Balance Funded Rate
Segment consisting of any portion of a Regular Tranche shall bear
interest at the rate of 1.25% per annum.

(c) LIBJR Segments. A LIBJR Segment consisting of any portion of
--------------
a Construction/Lot Loan Tranche shall bear interest at a rate per
annum equal to the sum of LIBJR plus 1.25% per annum. A LIBJR Segment
consisting of any portion of a Gestation Loan Tranche shall bear
interest at a rate per annum equal to the sum of LIBJR plus 0.65% per
annum. A LIBJR Segment consisting of any portion of a Regular Tranche
shall bear interest at a rate per annum equal to the sum of LIBJR plus
1.25% per annum.

(g) Section 6.1(b), 6.1(d) and 6.1(e) of the Loan Agreement are
hereby amended in their entirety to read as follows:

(b) Promptly after becoming available, and in any event within
45 days after the end of each March, June, September and December, and
30 days

-3-
<PAGE

after the end of each other month, a consolidated balance sheet of
Borrower and its Subsidiaries, if any, as of the end of such month and
the related consolidated statements of income, stockholders' equity
and cash flows of Borrower and its Subsidiaries, if any, for such
month and the period from the beginning of the current fiscal year of
Borrower through the end of such month, (i) certified by the president
of the Borrower or the chief financial officer of Parent to have been
prepared in accordance with GAAP applied on a basis consistent with
prior periods, subject to normal year-end adjustments, and (ii)
accompanied by a completed Jfficer's Certificate in the form of
Exhibit I hereto, executed by the president of the Borrower or the
chief financial officer of Parent;

(d) INTENTIJNALLY JMITTED,;

(e) Promptly and in any event within 30 days after the end of
each month, management report regarding Borrower's commitment
position, pipeline position and production;

(h) Section 6.22 of the Loan Agreement is hereby amended in its
entirety to read as follows:

6.22 Senior Management. If William Inman or Paul Saville shall
-----------------
cease to hold his current senior management position, unless the same
results from unsolicited resignation, death, disability, unsolicited
retirement or termination for cause, the Borrower shall promptly
thereafter undertake a search for a replacement officer with
comparable ability, as determined in good faith by the Borrower's
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Board of Directors, and shall complete such search within a reasonable
period of time, and during such period of time the Borrower shall
continue to conduct its business in accordance with customary industry
standards.

(i) Section 7.9 and 7.10 of the Loan Agreement are hereby amended in
their entirety to read as follows:

7.9 Adjusted Tangible Net Worth. Adjusted Tangible Net Worth at
---------------------------
any date shall not be less than $8,000,000.

7.10 Liabilities to Adjusted Tangible Net Worth Ratios. The
-------------------------------------------------
ratio of (a) the Total Liabilities, excluding the Borrower's (i) net
deferred taxes, (ii) Advances to the extent of the aggregate
Collateral Value of all Eligible Gestation Mortgage Loans, and (iii)
obligations in respect of Repurchase Agreements, to (b) Adjusted
Tangible Net Worth, shall not at any time exceed 12.5 to 1.0.

-4-
<PAGE

(j) Section 8.1(m) of the Loan Agreement is hereby amended in its
entirety to read as follows:

(m) INTENTIJNALLY JMITTED,;

(k) Schedule 1.1(a) to the Loan Agreement is hereby amended in its
entirety to read as set forth on Schedule 1.1(a) hereto.

(l) Schedule 1.1(b) to the Loan Agreement is hereby amended to add
the Pennsylvania Housing Finance Agency as an Investor.

(m) Schedule 5.22 to the Loan Agreement is hereby amended to add the
following:

14. Payment of intercompany advances made by the Parent to the
Company from time to time under the Subordinated Demand Revolving Note
of the Company dated September 7, 1999.

3. Amendment to Pledge and Security Agreement. The Pledge and Security
------------------------------------------
Agreement is hereby amended as follows:

(a) A new Section 4.08, which reads as follows, is added to the
Pledge and Security Agreement after Section 4.07:

4.08 REJ. If an Investment Mortgage Loan is foreclosed, the
---
resulting REJ will remain an Eligible Mortgage Loan if the following
documents are delivered to the Agent:

(a) if the purchaser at foreclosure is the Borrower and a
redemption period is applicable to the sale:

(i) a certified copy of the certificate of sale;

(ii) an assignment of the certificate of sale from
the Borrower, in blank; and

(iii) a copy of a recent appraisal (i.e., not more
than 60 days old) of the REJ.

(b) if the purchaser at foreclosure is the Borrower and
either no redemption period is applicable to the sale or such
redemption period has expired:

(i) a certified copy of the deed conveying the REJ
to the Borrower;

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

-5-
<PAGE

(ii) a deed conveying the REJ, executed in blank by
the Borrower;

(iii) an original owner's title insurance policy
showing the Borrower as owner, subject only to such
exceptions as may be acceptable to the Agent;

(iv) a copy of a recent appraisal (i.e., not more
than 60 days old) of the REJ; and

(v) if requested by the Agent, a Mortgage on the REJ
in favor of the Agent, executed by the Borrower.

4. Exiting Lenders. Jn the Effective Date, the aggregate unpaid principal
---------------
amount of the Loans made by The Bank of New York and Chase Bank of Texas, N.A.
(the "Exiting Lenders") under the Loan Agreement and related Note, together with
all interest, fees and other amounts, if any, payable to each Exiting Lender
thereunder as of the Effective Date (the "Payoff Amount"), shall be repaid in
full from the proceeds of Loans made by the remaining Lenders, and the
Commitments of the Exiting Lenders under the Loan Agreement shall terminate. The
Agent shall distribute to the Exiting Lenders by not later than 3:00 P.M.
(Minneapolis time) on the Effective Date out of the proceeds of the Loans made
for such purpose the amount required to pay each Exiting Lender's Payoff Amount
in full, whereupon such Exiting Lender shall no longer be a party to the Loan
Agreement other than in respect of rights relating to indemnities and similar
rights (including, without limitation, pursuant to Sections 2.10(a), 2.10(b) and
10.1 of the Loan Agreement) for events occurring or matters relating to the
period prior to the Effective Date.

5. New Lender. Jn the Effective Date, Comerica Bank ("Comerica") shall be
----------
a Lender under the Loan Agreement and shall have all of the rights, privileges
and benefits of a Lender under the Loan Agreement and the Loan Documents, and
shall have all of the duties of a Lender thereunder, as if Comerica had
initially been a party to the Loan Agreement as a Lender. Comerica shall make
Advances on the Effective Date, as requested by the Agent, so that its
outstanding Advances of each Tranche and Segment are equal to its Commitment
Percentage of such Advances outstanding on the Effective Date.

6. Conditions to Effectiveness of this Amendment. This Amendment shall
---------------------------------------------
become effective on September 1, 2000 (the "Effective Date"), provided the Agent
shall have received at least eight (8) counterparts of this Amendment, duly
executed by the Borrower and all of the Lenders (including the Existing Lenders
and Comerica), and the following conditions are satisfied:

(a) Before and after giving effect to this Amendment, the
representations and warranties of the Borrower in Section 5 of the Loan
Agreement and Section 5 of the

-6-
<PAGE

Pledge and Security Agreement shall be true and correct as though made on
the date hereof, except to the extent such representations and warranties
by their terms are made as of a specific date and except for changes that
are permitted by the terms of the Loan Agreement.

(b) Before and after giving effect to this Amendment, no Event of
Default and no Default shall have occurred and be continuing.

(c) Except as disclosed in the Parent's quarterly report on form 10-Q
filed with the Securities and Exchange Commission for the fiscal quarter
ended March 31, 2000, no material adverse change in the business, assets,
financial condition or prospects of the Borrower shall have occurred since
December 31, 1999.

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

(d) The Agent shall have received the following, each duly executed
or certified, as the case may be, and dated as of the date of delivery
thereof::

(i) a new Committed Warehousing Promissory Note payable to
each Lender holding a Commitment from and after the Effective Date, in
the amount of such Lender's respective Commitment Amount after giving
effect to this Amendment (each, a "New Note"), duly executed by the
Company;

(ii) copy of resolutions of the Board of Directors of the
Borrower, certified by its respective Secretary or Assistant
Secretary, authorizing or ratifying the execution, delivery and
performance of this Amendment;

(iii) a certified copy of any amendment or restatement of the
Articles of Incorporation or the By-laws of the Borrower made or
entered following the date of the most recent certified copies thereof
furnished to the Lenders;

(iv) certified copies of all documents evidencing any necessary
corporate action, consent or governmental or regulatory approval (if
any) with respect to this Amendment;

(v) a certificate of good standing for the Borrower in the
jurisdiction of its incorporation, certified by the appropriate
governmental official as of a date not more than 10 days prior to the
Effective Date; and

(vi) such other documents, instruments and approvals as the
Agent may reasonably request.

7. Acknowledgments. The Borrower and each Lender acknowledges that, as
---------------
amended hereby, the Loan Agreement and the Pledge and Security Agreement each
remains in full force and effect with respect to the Borrower and the Lenders,
and that each reference to the Loan Agreement, the Pledge and Security Agreement
or the Notes in the Loan Documents shall refer to the Loan Agreement or the Pledge and Security
Agreement, as amended hereby, or the New Notes. The Borrower confirms and acknowledges that it will
continue to comply with the covenants set out in the Loan Agreement and the other Loan Documents, as
amended hereby, and that its representations and warranties set out in the Loan Agreement and the other
Loan Documents, as amended hereby, are true and correct as of the date of this Amendment, except to the
extent such representations and warranties by their terms are made as of a specific date and except for
changes that are permitted by the terms of the Loan Agreement. The Borrower represents and warrants that
(i) the execution, delivery and performance of this Amendment is within its corporate powers and has
been duly authorized by all necessary corporate action; (ii) this Amendment has been duly executed and
delivered by the Borrower and constitutes the legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms
(subject to limitations as to enforceability which might result from bankruptcy, insolvency, or other
similar laws affecting creditors' rights generally and general principles of equity) and (iii) no
Events of Default or Default exist.

8. General.
-------

(a) The Borrower agrees to reimburse the Agent upon demand for all
reasonable expenses (including reasonable attorneys fees and legal
expenses) incurred by the Agent in the preparation, negotiation and
execution of this Amendment and any other document required to be furnished
herewith, and to pay and save the Lenders harmless from all liability for
any stamp or other taxes which may be payable with respect to the execution
or delivery of this Amendment, which obligations of the Borrower shall
survive any termination of the Loan Agreement.

(b) This Amendment may be executed in as many counterparts as may be
deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.

(c) Any provision of this Amendment which is prohibited or
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.

(d) This Amendment shall be governed by, and construed in accordance
with, the internal law, and not the law of conflicts, of the State of
Minnesota, but giving effect to federal laws applicable to national banks.

(e) This Amendment shall be binding upon the Borrower, the Lenders,
the Agent and their respective successors and assigns, and shall inure to
the benefit of the Borrower, the Lenders, the Agent and the successors and
assigns of the Lenders and the Agent.

-8-
<PAGE

This page is intentionally left blank,

-9-
<PAGE

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

NVR MJRTGAGE FINANCE, INC.

By: _________________________
Its: _________________________

U.S. BANK NATIJNAL ASSJCIATIJN,
as Agent and Lender

By: _________________________
Its: _________________________


SCHEDULE 1.1(a)
---------------

================================================================================
Commitment
Lender Amount
- --------------------------------------------------------------------------------
U.S. Bank National Association $ 45,000,000
Mortgage Banking Services
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Kathleen Connor
Telephone: 612-973-0306
Telecopy: 612-973-0826
- --------------------------------------------------------------------------------
Guaranty Federal Bank,F.S.B. $ 20,000,000
8333 Douglas, 11/th/ Floor
Dallas, TX 75225
Attention: Mike Barber
Telephone: 214-360-2872
Telecopy: 214-360-1660
- --------------------------------------------------------------------------------
Fleet Bank, N.A. $ 10,000,000
115 Perimeter Place
Suite 500
Atlanta, GA 30346
Attention: Steven S. Selbo
Telephone: 770-390-6522
Telecopy: 770-390-9811
- --------------------------------------------------------------------------------
Comerica Bank $ 15,000,000
Comerica Tower at Detroit Center
500 Woodward Avenue
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 8

Detroit, MI 48226
Attention: Heather D. Hogle
Telephone: 313-222-5740
Telecopy: 313-222-9295
- --------------------------------------------------------------------------------
National City Bank of Kentucky $ 10,000,000
421 W. Market Street
Louisville, KY 40202
Attention: Mary Jo Reiss
Telephone: 502-581-4197
Telecopy: 502-581-4154
- --------------------------------------------------------------------------------
TJTAL $100,000,000
================================================================================

3
</TEXT
</DJCUMENT
<DJCUMENT
<TYPEEX-10.37
<SEQUENCE6
<FILENAME0006.txt
<DESCRIPTIJNEXHIBIT 10.37
<TEXT

<PAGE

EXHIBIT 10.37


NVR, INC.
7601 Lewinsville Road
McLean, Virginia 22102


Dated as of: December 13, 2000

Fleet National Bank
Individually and as Agent
100 Federal Street
Boston, Massachusetts 02110

Comerica Bank
Comerica Tower
500 Woodward Avenue, 7/th/ Floor
MC 3256
Detroit, Michigan 48226

U.S. Bank National Association
601 Second Avenue, South
Minneapolis, Minnesota 55402

Re: Amendment No. 4 to Third Amended and Restated Credit Agreement
--------------------------------------------------------------

Ladies and Gentlemen:

We refer to the Third Amended and Restated Credit Agreement, dated as
of September 30, 1998 (as amended, the "Credit Agreement"), by and among NVR,
Inc. (the "Borrower"), Fleet National Bank, successor by merger to BankBoston,
N.A. ("Fleet"), U.S. Bank National Association ("USB") and Comerica Bank
("Comerica") (collectively, the "Banks"), and Fleet as Agent for the Banks (the
"Agent"). Terms used in this letter of agreement (this "Amendment No. 4") which
are not defined herein, but which are defined in the Credit Agreement, shall
have the same respective meanings herein as therein.

We have requested you to make modifications to the Credit Agreement
(collectively, the "Modifications"). We have also requested you to consent to
the merger of Fox Ridge with and into the Borrower. You have advised us that
you are prepared and would be pleased to make the Modifications and give your
consent to such merger on the condition that we join with you in this Amendment
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page 9

No. 4.

Accordingly, in consideration of these premises, the promises, mutual
covenants and agreements contained in this Amendment No. 4, and fully intending
to be legally bound by this Amendment No. 4, we hereby agree with you as
follows:

1
<PAGE

ARTICLE I
---------

AMENDMENTS TJ CREDIT AGREEMENT
------------------------------

Effective as of the consummation of the Merger (defined below), the Credit
Agreement is amended as follows:

(a) The terms "Loan Documents" and "Credit Agreement" shall, wherever used
in the Credit Agreement or any of the other Loan Documents, including, without
limitation, each Revolving Credit Note, be deemed to also mean and include this
Amendment No. 4.

(b) The definition of "Borrowing Base" contained in Section 1 of the
Credit Agreement is hereby amended to read in its entirety as follows:

"Borrowing Base". At any time of determination, an amount equal to
--------------
the sum of the following assets of Borrower (excluding NVRMF): (i) the
book value of Sold Units which are not held as Beneficial Interest
Units multiplied by ninety-five percent (95%); plus (ii) the book
value of Unsold Units which are not held as Beneficial Interest Units
multiplied by eighty percent (80%); plus (iii) the book value of
Manufacturing Materials multiplied by eighty percent (80%); plus (iv)
up to an aggregate of $10,000,000, the sum of (a) the book value of
Sold Units which are held as Beneficial Interest Units multiplied by
ninety-five percent (95%) and (b) the book value of Unsold Units which
are held as Beneficial Interest Units multiplied by eighty percent
(80%); in each case, as calculated in accordance with GAAP."

(c) The definition of "Restricted Subsidiaries" contained in Section 1 of
the Credit Agreement is hereby amended to read in its entirety as follows:

"Restricted Subsidiaries". The following entities: NVR Delaware, NVR
-----------------------
Funding, NVR Funding II and NVR Services and such other entities as
may be designated as a Restricted Subsidiary under the terms of the
New Indenture and which comply with the provisions of Section 9.36.

(d) The last sentence of the definition of "Sold Units" contained in
Section 1 of the Credit Agreement is hereby deleted in its entirety.

(e) The following new definition is added to Section 1 of the Credit
Agreement as follows:

"Merger". The merger of Fox Ridge with and into the Borrower on the
------
terms and conditions set forth in the agreement of merger dated as of
December 31, 2000, as evidenced by a certificate of merger accepted by
the applicable filing office and provided to the Agent.

(f) Section 9.4 of the Credit Agreement is hereby amended to read in its
entirety as follows:

"9.4 Use of Proceeds; Letters of Credit. Borrower shall use the
----------------------------------
proceeds of the Advances of the Revolving Credit Loans solely to
provide for the working capital needs of Borrower and to meet such
other capital needs of Borrower as are

An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

2
<PAGE

provided for under this Agreement and to make Investments and
Distributions to the extent expressly permitted under this Agreement."

(g) The parenthetical contained in Section 9.21(i) of the Credit Agreement
is amended to read in its entirety as follows:

"(other than NVRMF and its Subsidiaries, NVR Funding, NVR Funding II
and NVR Services)".

(h) Section 9.21(o) of the Credit Agreement is hereby deleted in its
entirety and replaced by the following new Section 9.21(o):

"(o) provided no Default or Event of Default has occurred and remains
uncured, Investments in NVRMF and NVR Funding to the extent set forth
below:

(i) in NVRMF, Investments (the "Permitted Maximum NVRMF
Investment") from time to time outstanding, in an amount up to
(a) $30,000,000 or (b) if no amounts of the Loans are
Jutstanding, up to (1) the amount then allowed under the New
Indenture if any of the 1998 Senior Notes are outstanding or (2)
if the 1998 Senior Notes are not outstanding, $50,000,000; and

(ii) in NVR Funding, Investments intended and utilized solely for
the benefit of NVRMF, up to the Permitted Maximum NVRMF
Investment amount (less any then outstanding amounts of
Investments in NVRMF made by Borrower under clause (i) above or
by NVR Funding under this clause (ii));".

(i) Section 9.26(a) of the Credit Agreement is hereby deleted in its
entirety and replaced by the following new Section 9.26(a):

"(a) Borrower shall not enter into or permit any Restricted
Subsidiary to enter into any sale and leaseback transactions as
seller-lessee or make any acquisitions without the prior written
consent of the Majority Banks and the Agent other than (i) the sale
and leaseback of model units in the ordinary course of Borrower's
business consistent with past practices or as may be provided for in
this Agreement; (ii) acquisitions of real estate to the extent
permitted by this Agreement; (iii) capital expenditures; (iv) building
materials, fixtures, supplies and all other personal property acquired
by Borrower in the ordinary course of business consistent with past
practices; (v) Investments and Distributions permitted pursuant to
(S)(S)9.20 and 9.21; and (vi) other acquisitions in the aggregate
amount of $5,000,000 during the term hereof."

(j) Section 9.26(b) of the Credit Agreement is hereby deleted in its
entirety.

(k) Section 10.1(c) of the Credit Agreement is hereby amended by deleting
the reference to "(S)9.26(b)" therefrom.

(l) Schedule 6.1(c) to the Credit Agreement is hereby amended to read in
its entirety as set forth on Annex 1 attached hereto.
-------

3
<PAGE

ARTICLE II
----------

CJNSENT TJ FJX RIDGE MERGER
---------------------------

We have informed you that we intend to merge Fox Ridge with and into the
Borrower. Pursuant to Section 9.24 of the Credit Agreement, the Borrower is
prohibited from merging or consolidating with or into any Person and is
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

prohibited from allowing any Restricted Subsidiary to merge or consolidate with
or into any Person. By your signatures below, please evidence your consent to
the merger of Fox Ridge with and into the Borrower on the terms set forth in the
agreement of merger dated as of December 31, 2000, a copy of which has been
provided to the Agent.


ARTICLE III
-----------

CJNDITIJNS PRECEDENT TJ AMENDMENT
---------------------------------

The Banks' agreement herein to amend the Credit Agreement and consent to
the merger of Fox Ridge with and into the Borrower is subject to the fulfillment
of the following conditions:

(a) The Agent shall have received from the Borrower this Amendment
No. 4, duly executed and delivered by the Borrower; and

(b) the Agent and each of the Banks shall have executed this
Amendment No. 4.

The parties hereto acknowledge and agree that in the event that the Merger
is not consummated on December 31, 2000, this Amendment No. 4 shall be of no
further force or effect and the modifications to the Credit Agreement described
herein shall not become effective.


ARTICLE IV
----------

REPRESENTATIJNS AND WARRANTIES
------------------------------

The Borrower hereby represents, warrants and covenants to you as follows:

(a) Representations in Credit Agreement. To the best of the Borrower's
-----------------------------------
knowledge, each of the representations and warranties made by or on behalf of
the Borrower to you in the Credit Agreement and the other Loan Documents, as
amended through this Amendment No. 4, was true and correct when made, and is
true and correct in all material respects on and as of the date hereof with the
same full force and effect as if each of such representations and warranties had
been made by the Borrower on the date hereof and in this Amendment No. 4, except
to the extent that such representations and warranties relate solely to a prior
date.

(b) No Events of Default. No Default or Event of Default exists on the
--------------------
date hereof (after giving effect to the Modifications contemplated hereby and
the transactions described herein).

(c) Binding Effect of Documents. This Amendment No. 4 has been duly
---------------------------
executed

4
<PAGE

and delivered to you by the Borrower and is in full force and effect as of the
date hereof, and the agreements and obligations of the Borrower contained herein
constitute legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their respective terms.

(d) Consents. The Borrower has obtained all consents which are necessary
--------
in order to consummate the transactions referred to in this Amendment No. 4, and
has furnished copies of all such consents, if any, to the Agent.


An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

ARTICLE V
---------

PRJVISIJNS JF GENERAL APPLICATIJN
---------------------------------

(a) No Jther Changes. Except as otherwise expressly provided by this
----------------
Amendment No. 4, all of the terms, conditions and provisions of the Credit
Agreement and the other Loan Documents remain unaltered. The Credit Agreement
and this Amendment No. 4 shall be read and construed as one agreement.

(b) Governing Law. This Amendment No. 4 is intended to take effect as a
-------------
sealed instrument and shall be deemed to be a contract under the laws of the
Commonwealth of Massachusetts. This Amendment No. 4 and the rights and
obligations of each of the parties hereto shall be governed by and interpreted
and determined in accordance with the laws of the Commonwealth of Massachusetts.

(c) Binding Effect; Assignment. This Amendment No. 4 shall be binding
--------------------------
upon and inure to the benefit of each of the parties hereto and their respective
successors in title and assigns.

(d) Counterparts. This Amendment No. 4 may be executed in any number of
------------
counterparts, but all such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment No. 4, it shall not be
necessary to produce or account for more than one counterpart hereof signed by
each of the parties hereto.

(e) Conflict with Jther Agreements. If any of the terms of this Amendment
------------------------------
No. 4 shall conflict in any respect with any of the terms of the Credit
Agreement or any other Loan Document, the terms of this Amendment No. 4 shall be
controlling.

If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this Amendment No. 4 and return such
counterpart to the undersigned, whereupon this Amendment No. 4 shall become a
binding agreement between you and the undersigned.

Very truly yours,

NVR, INC.

By:___________________________________
Title:

Signatures continued on next page,

5
<PAGE

The foregoing Amendment No. 4 is hereby accepted by the undersigned as of
December 13, 2000.

FLEET NATIJNAL BANK,
Individually and as Agent

By:_____________________________
Title:

CJMERICA BANK

By:_____________________________
Title:

U.S. BANK NATIJNAL ASSJCIATIJN

By:_____________________________
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Title:

6
<PAGE

ANNEX 1
-------


Schedule 6.1(c)
---------------

Subsidiaries of NVR, Inc.


1. NV Insurance Brokers, Inc.

2. Dillon Company, Inc.

3. NVR Mortgage Finance, Inc. and its subsidiaries listed below:

. Service Tax Corporation
. Ryan Mortgage Acceptance Corporation IV
. MPS Mortgage Appraisal Services, Inc.
. Richmarr Mortgage Corp.
. NVR Nevada Mortgage Servicing, Inc.
. Heritage Mortgage LP
. NVRM Acquisition, Inc. and its subsidiary First Republic Mortgage
Corp.
. NVR Settlement Services, Inc. and its subsidiaries listed below:

. NVR Settlement Services of Tennessee LLC
. NVR Settlement Services of Maryland, Inc.
. PHM Title Agency LLC
. Cornerstone Settlement Services, L.P.
. Heritage Settlement Services, L.P.
. First NVR Settlement Services LLC
. NVR Title Agency LLC
. McMurray Settlement Services, L.P.
. Legacy Title Agency, Inc.

4. RVN, Inc.

5. NVRD Holding, Inc. and its subsidiary:

. NVR Development, Inc. and its subsidiaries listed below:

. NVRD California, Inc.
. NV California, Inc.
. Jld Stage Limited Partnership
. Centre Ridge II Limited Partnership
. Centre Ridge III Limited Partnership
. Seven Courts Development General Partnership
. NVRD HGDS Associates G.P.
. H.R. Remington Properties L.P.
. Remington/Carlsbad L.P.

6. NVHL, Inc.

7. Madison Lane G.P.

1
<PAGE

8 M/R Limited Partnership

9. 100 Investment L.P.

10. Land First

11. NVR Services, Inc.
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page


12. NVR Funding II, Inc.

13. HBG/NVR LLC

2
</TEXT
</DJCUMENT
<DJCUMENT
<TYPEEX-11
<SEQUENCE7
<FILENAME0007.txt
<DESCRIPTIJNEXHIBIT 11
<TEXT

<PAGE

EXHIBIT 11

NVR, Inc.
Computation of Earnings Per Share
(amounts in thousands, except per Share amounts)

<TABLE
<CAPTIJN
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
----------------- ----------------- -----------------
<S <C <C <C
1. Net income $ 158,246 $ 108,881 $ 56,706
================= ================= =================

2. Average number of Shares
outstanding 9,084 10,190 11,131

3. Shares issuable upon exercise of
dilutive options, warrants and
subscriptions outstanding during
period, based on average market price 1,480 1,898 2,169
----------------- ----------------- -----------------

4. Average number of Shares and
Share equivalents outstanding (2 + 3) 10,564 12,088 13,300
================= ================= =================

5. Basic earnings per share (1/2) $ 17.42 $ 10.69 $ 5.10
================= ================= =================

6. Diluted earnings per share (1/4) $ 14.98 $ 9.01 $ 4.26
================= ================= =================
</TABLE

1
</TEXT
</DJCUMENT
<DJCUMENT
<TYPEEX-21
<SEQUENCE8
<FILENAME0008.txt
<DESCRIPTIJNEXHIBIT 21
<TEXT

<PAGE

EXHIBIT 21
NVR, Inc. Subsidiaries

State of
--------
Incorporation or
----------------
An Intelligent Investoi Biscusses NvR (Examples of Cleai Thinking anu Analysis with -K

www.csinvesting.woiupiess.com stuuyingteaching anu investing Page

Name of Subsidiary Jrganization
- --------------------------------------- ------------

NVR Mortgage Finance, Inc. Virginia
NVR Settlement Services, Inc. Pennsylvania
Ryan Mortgage Acceptance Corporation IV Delaware
RVN, Inc. Delaware
NVR Services, Inc. Virginia
NVR Funding II, Inc. Delaware

1
</TEXT
</DJCUMENT
<DJCUMENT
<TYPEEX-23
<SEQUENCE9
<FILENAME0009.txt
<DESCRIPTIJNEXHIBIT 23
<TEXT

<PAGE

Consent of Independent Auditors
-------------------------------

The Board of Directors
NVR, Inc.:

We consent to incorporation by reference in the registration statement (No. 33-
69754) on Form S-8 (for the NVR, Inc. Directors' Long-Term Incentive Plan), the
registration statement (No. 33-69756) on Form S-8 (for the NVR, Inc. Management
Equity Incentive Plan), the registration statement (No. 33-69758) on Form S-8
(for the NVR, Inc. Equity Purchase Plan), the registration statement (No. 33-
87478) on Form S-8 (for the NVR, Inc. 1994 Management Equity Incentive Plan),
the registration statement (No. 333-04975) on Form S-8 (for the NVR, Inc.
Management Long-Term Stock Jption Plan), the registration statement (No. 333-
04989) on Form S-8 (for the NVR, Inc. Directors' Long-Term Stock Jption Plan),
the registration statement (No. 33-69436) on Form S-3, the registration
statement (No. 333-44515) on Form S-3 (for a universal shelf registration for
senior or subordinated debt in an amount up to $400 million), the amended
registration statement (No. 333-44515) on Form S-3A (for a universal shelf
registration for senior or subordinated debt in an amount up to $400 million),
the registration statement (No. 333-79949) on Form S-8 (for the NVR, Inc. 1998
Directors' Long-Term Stock Jption Plan), and the registration statement (No.
333-79951) on Form S-8 (for the NVR, Inc. 1998 Management Stock Jption Plan) of
our reports on the consolidated balance sheets of NVR, Inc. and subsidiaries as
of December 31, 2000 and 1999 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the three year
period ended December 31, 2000, included herein.


KPMG LLP


McLean, Virginia
March 7, 2001