Kit thanks for your reply. You said…

The safeness of the loan has little to do with the recognition of noncash revenue they recognize from residuals and fees other than how they use it as an input in their calculations. What they are doing is structuring securities or bonds whose face value exceeds the value of the assets. That is undercollateralized and I am not too crazy about it.

But it has everything to do with their ability to actually collect the residuals they are counting on and their estimated current value. If I understand this, because the loans are insured the "bankruptcy remote entity " does not lose the principal or accrued interest in the case of a default. What it does lose is the interest going forward (they planned on receiving) and the expenses incurred in the process of attempting to prevent default. This loss of revenue and increased expense in turn decreases the likelihood and/or the amount that the assets will exceed the liabilities (represented by the bonds) and ultimately how much in residuals they actually collect in cash.

Do I have it?

If I do then it comes down to two Questions I need to answer.

1. Is their database in deed a better mouse trap.
2. Are they being conservative with their estimates/assumptions.


On the first point from everything I've read I think the answer has to be yes. It maybe not be perfect but from all accounts they have a leg up on their competition. Whether it is a sustainable advantage is another story but with any investment we are faced with monitoring how they handle competition and so far they appear to be doing just fine.

The second question is a much harder read for me, as I said financial companies and insurance companies "make me dizzy". So I'll just have to defer to their pedigree with the full knowledge that if their reckless or worse crooks I'm gonna get spanked (doesn't this apply to any company though?), on the other hand if they aren't this could be a incredible investment

Again, thanks for your reply.

B