Ryland 1998 Annual Report

THE RYLAND GROUP, INC. & SUBSIDIARIES

Management's Discussion and Analysis of Results of
Operations and Financial Condition

INTEREST RATE SENSITIVITY
Principal Amount by Expected Maturity

Interest rate risk is the primary market risk facing the Company. Interest rate risk arises principally in the Company's financial services segment but also with respect to the homebuilding segment long-term debt. The Company enters into forward delivery contracts and may at times use other hedging contracts to mitigate its exposure to movements in interest rates on mortgage loan commitments and mortgage loans held-for-sale based upon the Company's marketing strategy that establishes a risk tolerance level. The major factors influencing the use of hedging contracts include general market conditions, interest rates, types of mortgages originated, and the percentage of mortgage loan commitments expected to be funded. The market risk assumed while holding the hedging contracts mitigates the market risk associated with the mortgage loan commitments and mortgage loans held-for-sale. In managing interest rate risk, the Company does not speculate on the direction of interest rates. Although the collateral for bonds payable and the bonds payable of the limited-purpose subsidiaries are subject to interest rate risk, the Company has not guaranteed nor is otherwise obligated with respect to these bond issues and therefore has no risk of loss.

Note:
Certain statements in this Annual Report may be "forward-looking statements" within the meaning of the Private Securities Litigation Act of 1995. Forward-looking statements are based on various factors and assumptions that include known and unknown risks and uncertainties, the completion and profitability of sales reported, the market for homes generally and in areas where the Company operates, the availability and cost of land, changes in economic conditions and interest rates, increases in raw material and labor costs, consumer confidence, government regulations, and general competitive factors, all or each of which may cause actual results to differ materially.