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Non-Tech : Cityscape Financial (CTYS)

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To: Brooks Jackson who wrote (864)	10/12/1997 12:07:00 PM
From: Rational	of 2544

About 50% of the loans are made to borrowers with excellent credit -- CTYS is expanding this program. The remaining are to subprime borrowers with sufficient equity in their homes -- low LTV (<70%) loans. Real estate prices have remained depressed for the last 7 years. [One of the reasons for why the stock market is booming is because people are diverting their investments from real estate to the stock market.] When the stock market goes down, investors turn to real-estate (lifting up the prices) and so there is little chance for CTYS to lose on these loans. CTYS lends only to homeowners who rarely default. The delays in payment are branded as delinquency (in UK this rate is higher because CTYS uses this pretext to change the loan to a higher rate) but this does not result in an actual loss to the company. CTYS loses an estimated 0.33% of its loan portfolio. I estimated this very conservative number which is much higher than they report. The risk of a highly depressed CTYS price going down in a downturn economy is thus much smaller than that for a stock with a high P/E. Obviously, to avoid the risks of a downturn economy, one should look at US Treasury inflation-adjusted bonds. Good luck with your investment. Sankar

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