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Predicting mortgage early delinquency with machine learning methods

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  • Chen, Shunqin
  • Guo, Zhengfeng
  • Zhao, Xinlei

Abstract

This paper investigates the performance of thirteen methods for modelling and predicting mortgage early delinquency probabilities. These models include variants of logit models, some commonly used machine learning methods, and variants of ensemble models. We find that heterogenous ensemble methods lead other methods in the training, out-of-sample, and out-of-time datasets in terms of risk classification. Nonetheless, various predictive accuracy performance measures yield different rankings among the thirteen methods and no method consistently dominates in this performance dimension in the training, out-of-sample, and out-of-time data. Lastly, predictive accuracy is a major challenge facing all mortgage early delinquency models, even in the training data.

Suggested Citation

  • Chen, Shunqin & Guo, Zhengfeng & Zhao, Xinlei, 2021. "Predicting mortgage early delinquency with machine learning methods," European Journal of Operational Research, Elsevier, vol. 290(1), pages 358-372.
    • Handle: RePEc:eee:ejores:v:290:y:2021:i:1:p:358-372
    DOI: 10.1016/j.ejor.2020.07.058
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    2. Gianluca Anese & Marco Corazza & Michele Costola & Loriana Pelizzon, 2023. "Impact of public news sentiment on stock market index return and volatility," Computational Management Science, Springer, vol. 20(1), pages 1-36, December.
    3. Margherita Doria & Elisa Luciano & Patrizia Semeraro, 2022. "Machine learning techniques in joint default assessment," Papers 2205.01524, arXiv.org, revised Sep 2023.
    4. Chi, Guotai & Dong, Bingjie & Zhou, Ying & Jin, Peng, 2024. "Long-horizon predictions of credit default with inconsistent customers," Technological Forecasting and Social Change, Elsevier, vol. 198(C).
    5. Mahsa Tavakoli & Rohitash Chandra & Fengrui Tian & Cristi'an Bravo, 2023. "Multi-Modal Deep Learning for Credit Rating Prediction Using Text and Numerical Data Streams," Papers 2304.10740, arXiv.org, revised Nov 2024.

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