Loan Default ModelLoan Default Model

Saed Sayad

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Data Mining Steps

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1. Problem Definition

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Build loan default prediction model for small business using the historical data to assess the likelihood of default by an obligor.

Build loan default prediction model for small business using the historical data to assess the likelihood of default by an obligor.

Data Mining Team

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Domain Expert

Domain Expert

2. Data Preparation

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• No of Cases: 35,500 • No of Defaults: 2,500 (7%)• Number of Variables: 25• Total balance for all cases: $554,000,000

• Total balance for defaults: $58,000,000 (10.4%)

• No of Cases: 35,500 • No of Defaults: 2,500 (7%)• Number of Variables: 25• Total balance for all cases: $554,000,000

• Total balance for defaults: $58,000,000 (10.4%)

3. Data Exploration

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Data Exploration - Univariate

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Months in BusinessMonths in Business

Data Exploration - Bivariate

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Default%

Months in Business and DefaultMonths in Business and Default

4. Modeling

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Modeling - Classification

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f

DELQ

Age

Type

Default

Y or NY or N

Logistic RegressionLogistic Regression

Logistic Regression Model

0

1

Linear Model

Logistic Model

Default

Months in Business

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5. Evaluation

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Evaluation – Variables Contribution

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Evaluation - Confusion Matrix

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Positive CasesPositive Cases Negative CasesNegative Cases

Pred

icte

d Po

sitiv

ePr

edic

ted

Posi

tive

Pred

icte

d N

egati

vePr

edic

ted

Neg

ative

Evaluation – Gain Chart

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Population%

50%10%

100%

100%

58%

10%

Default%

Return On Investment

• Total Number of Loans = 8,167• Total Number of Defaults = 560• Total Balance for Defaults = $12,281,589 • Top 10% Random– Number of Defaults = 56– Total Balance = $1,230,000

• Top 10% Model– Number of Defaults = 305 – Total Balance = $7,655,772

• Total Number of Loans = 8,167• Total Number of Defaults = 560• Total Balance for Defaults = $12,281,589 • Top 10% Random– Number of Defaults = 56– Total Balance = $1,230,000

• Top 10% Model– Number of Defaults = 305 – Total Balance = $7,655,772

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600% ROI

6. Deployment

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Questions?