As not only Hurricane Katrina, but pockets of rapid home price appreciation have made "geographic concentration" a popular term lately among concerned secondary market participants, another factor - borrower type - has entered into the equation as areas where the non-traditional buyer prevails have, on average, become more pronounced. Subprime and Alt-A borrowers have become increasingly concentrated by geographic region in the last five years, and the top 10 MSAs with the highest concentration of non-agency borrowers has refreshed itself by half, according to RBS Greenwich Capital head of ABS and mortgage credit strategy Peter DiMartino.

Loans classified as subprime had the lowest concentration risk among three non-agency sectors - subprime, Alt-A and Resi-A - analyzed last week by RBS Greenwich. The top 10 subprime MSAs measured 32% of the sector, rising from 25% prior to 2000, whereas the Alt-A sector has increased to a 42% concentration, rising 15% since 2000. The Resi-A sector, at 52% has the largest concentration, has decreased from a 54% concentration.

Where most of those non-traditional buyers are located should not come as much of a surprise. California regions accounted for five of the pre-2000 Alt-A hotspots, with the Los Angeles and San Diego MSAs accounting for 15% of the current top 10 concentrations in that sector. Meanwhile, the two MSAs topping the list of subprime loan concentration were Los Angeles and Riverside, which account for 11.5% of the group; prior to 2000, Philadelphia and Chicago constituted 10.2%. Three California MSAs - Riverside, Orange County and Oakland - along with New York and Nassau-Suffolk (N.Y.), replaced Philadelphia, Cleveland, Houston, Pittsburgh and Dallas in the top 10 for subprime. The San Jose, Oakland, Chicago and Atlanta MSAs took over the top of the 10 most concentrated Resi-A regions in 2005, replacing Philadelphia, Houston, Boston and Nassau-Suffolk.

The good news in this sector is that, while Los Angeles and San Francisco have led as the most concentrated Resi-A regions both prior to 2000 and currently, the total concentration in those two areas has dropped substantially - to 16%, down 33% from 24% pre-2000.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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