Interest Radar state filter allows you to select the top 9 states in number of loans. For the sake of being practical (read about our principles if you haven’t yet), the remaining states are grouped together as “Other”. There is not much reason to create a strategy to focus for example on South Carolina listings, when the total number of loans so far to SC was around 800, or less than 14 in average every month. Statistically, their performance can’t be determined.
The difference between states, from a credit standpoint, is not only cultural (think Texas), but mainly related to state law and court inclinations. How easy is it to file bankruptcy, how expensive is it to sue, how fast is it to foreclose.
As is normally the case, the State attribute shouldn’t be used by itself to rule out a group of loans. Let’s do an exercise to compare FL and CA, for loans issued with grades C-G.
If we simply request Interest Radar for the breakdown of the loans in these two states, we will see that CA has the higher loss rate of 5.7% and FL is a little better with 5.6%. But let’s test something now and select only loans with zero or one delinquencies in the last 2 years. Now the picture is inverted: CA is 5.6% and FL is 5.8%. So, we decreased the loss for CA and increased in 0.2% the loss in FL. That means we’re turning down some loans in FL that have 2 or more delinquencies but in average have less than 5.6% loss rate, therefore increasing the average loss rate for that state. In CA the opposite occurred, as it appears that 2 or more delinquencies are a really bad sign there. You can verify this by yourself by filtering out zero and 1 delinquencies, and looking at CA and FL one at a time. Surprisingly, the average loss in FL for those with 2 delinquencies is only 2.1%.