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The intent of the following article is to provide an overview on the use of geographical concentration statistics by mortgage industry investors and demonstrate methods that investors use to track and report geographic concentration statistics for loans in their servicing portfolio for risk management and seller performance monitoring purposes.


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Geographic Concentration Overview

A seller's Geographic Concentration is the loan amount percentage, by geographic location (e.g. State, County, Metropolitan Statistical Area (MSA), Zip Code, etc.), that the investor has purchased or is currently servicing. Statistical models show that geographic location in conjunction with other key performance indicators can determine a loan's likelihood for profitable servicing. In the interest of mitigating portfolio risk, investors perform analysis to determine the Geographic Concentration of loans in their servicing portfolio.

By tracking and reporting a seller's Geographic Concentration an investor can mitigate the risk of buying too many loans in a high risk geographic location from any one seller and can ensure diversification of their portfolio by offering higher premiums for loans in lower risk and/or higher profit geographic areas. The "Reporting Geographic Concentration Statistics" section of this article details steps for creating a report that an investor might use to track and report the geographic concentration for loans that a seller has delivered to the investor. A disproportionate percentage of loans in a single geographical location or region could represent a significant risk to the investor. The Sample Seller Geographic Concentration Report in this article can be used as a model for stand alone geographic concentration report or incorporated into a comprehensive Seller Scorecard report.

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