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Applying Few-Shot Learning Techniques to Mortgage Data

Recorded: September 22nd | 1:00 p.m. EDT

Few-shot and one-shot learning models continue to gain traction in a growing number of industries – particularly those in which large training and testing samples are hard to come by. But what about mortgages? Is there a place for few-shot learning where datasets are seemingly so robust and plentiful? 

 

A growing body of evidence suggests that the high dimensionality of mortgage data spaces may actually make them ideal candidates for few-shot learning. 

 

Suhrud Dagli and Jing Liu present the latest installment in RiskSpan’s Data & Machine Learning Workshop series. Suhrud and Jing share examples of how they are using few-shot learning techniques in prepayment modeling and in automating quality control checks on uploaded mortgage data. 

 


Featured Speakers

Suhrud Dagli

Co-Founder and CIO, RiskSpan

Jing Liu

Senior Analyst, RiskSpan

Automating Compliance Risk Analytics

 Recorded: August 4th | 1:00 p.m. EDT

Completing the risk sections of Form PF, AIFMD, Open Protocol and other regulatory filings requires submitters to first compute an extensive battery of risk analytics, often across a wide spectrum of trading strategies and instrument types. This “pre-work” is both painstaking and prone to human error. Automating these upstream analytics greatly simplifies life downstream for those tasked with completing these filings.

RiskSpan’s Marty Kindler walks through a process for streamlining delta equivalent exposure, 10 year bond equivalent exposure, DV01/CS01, option greeks, stress scenario impacts and VaR in support not only of downstream regulatory filings but of an enhanced, overall risk management regime.


Featured Speaker

Martin Kindler

Managing Director, RiskSpan

Is Your Enterprise Risk Management Keeping Up with Recent Regulatory Changes?

Recorded: June 30th | 1:00 p.m. EDT

Nick Young, Head of RiskSpan’s Model Risk Management Practice, and his team of model validation analysts walk through the most important regulatory updates of the past 18 months from the Federal Reserve, OCC, and FDIC pertaining to enterprise risk management in general (and model risk management in particular).

Nick’s team present tips for ensuring that your policies and practices are keeping up with recent changes to AML and other regulatory requirements.


Featured Speakers

Nick Young

Head of Model Risk Management, RiskSpan

Data & Machine Learning Workshop Series

RiskSpan’s Edge Platform is supported by a dynamic team of professionals who live and breathe mortgage and structured finance data. They know firsthand the challenges this type of data presents and are always experimenting with new approaches for extracting maximum value from it.

Join us for a complimentary series of virtual workshops where RiskSpan professionals share what we’re learning about applying machine learning and other innovative techniques to data that asset managers, broker-dealers and mortgage bankers care about.

Catch up with these previously recorded workshops

Measuring and Visualizing Feature Impact & Machine Learning Model Materiality

RiskSpan CIO Suhrud Dagli demonstrates in greater detail how machine learning can be used in input data validations, to measure feature impact, and to visualize how multiple features interact with each other.

Structured Data Extraction from Images Using Google Document AI

RiskSpan Director Steven Sun shares a procedural approach to tackling the difficulties of efficiently extracting structured data from images, scanned documents, and handwritten documents using Google’s latest Document AI Solution.

Pattern Recognition in Time Series Data

Traders and investors rely on time series patterns generated by asset performance to inform and guide their trading and asset allocation decisions. Economists take advantage of analogous patterns in macroeconomic and market data to forecast recessions and other market events. But you need to be able to spot these patterns in order to use them.

Advanced Forecasting Using Hierarchical Models

Traditional statistical models apply a single set of coefficients by pooling a large dataset or for specific cohorts. Hierarchical models learn from feature behavior across dimensions or timeframes. This informative workshop applies hierarchical models to a variety of mortgage and structured finance use cases.

Quality Control with Anomaly Detection (Part I)

Outliers and anomalies refer to various types of occurrences in a time series. Spike of value, shift in level or volatility or a change in seasonal pattern are common examples.  RiskSpan Co-Founder & CIO Suhrud Dagli is joined by Martin Kindler, a market risk practitioner who has spent decades dealing with outliers.

Quality Control with Anomaly Detection (Part 2)

Suhrud Dagli presents Part 2 of this workshop, which dove into mortgage loan QC and introduce coding examples and approaches for avoiding false negatives using open-source Python algorithms in the Anomaly Detection Toolkit (ADTK).

May 26 Webinar: Is Your Pricing Methodology Compliant With Rule 2a-5?

Recorded: May 26th | 1:00 p.m. ET

The SEC’s new Rule 2a-5 has important ramifications for anyone in the business of pricing hard-to-value instruments. It requires valuation practitioners to demonstrate good faith in implementing and following a defensible and transparent processes. But what does this mean as a practical matter?

On Wednesday, May 26th experts David Baum and Martin Dozier of Alston & Bird and Bill Moretti and Joe Sturtevant of RiskSpan explained and responded to your questions about:

  • What the new requirements are
  • Who is impacted and when
  • Implementation best practices
  • Potential issues with Rule 17a-7, and
  • Modeling considerations, including assumptions, back-testing, calibration, and data management.

Featured Speakers

William Moretti

Senior Managing Director, RiskSpan

David Baum

Partner, Investment Management, Trading and Markets Group, Alston & Bird LLP

Martin Dozier

Partner, Alston & Bird LLP

Joseph Sturtevant

Head of Valuation Services, RiskSpan

May 19 Workshop: Quality Control Using Anomaly Detection (Part 2)

Recorded: May 19 | 1:00 p.m. ET

Last month, RiskSpan’s Suhrud Dagli and Martin Kindler outlined the principles underlying anomaly detection and its QC applications related to market data and market risk. You can view a recording of that workshop here.

On Wednesday, May 19th, Suhrud presented Part 2 of this workshop, which dove into mortgage loan QC and introduce coding examples and approaches for avoiding false negatives using open-source Python algorithms in the Anomaly Detection Toolkit (ADTK).

RiskSpan presents various types of detectors, including extreme studentized deviate (ESD), level shift, local outliers, seasonal detectors, and volatility shift in the context of identifying spike anomalies and other inconsistencies in mortgage data. Specifically:

  • Coding examples for effective principal component analysis (PCA) loan data QC
  • Use cases around loan performance and entity correction, and
  • Novelty detection

Suhrud Dagli

Co-founder and CIO, RiskSpan

Martin Kindler

Managing Director, RiskSpan


April 28 Workshop: Anomaly Detection

Recorded: April 28 | 1:00 p.m. ET

Outliers and anomalies refer to various types of occurrences in a time series. Spike of value, shift in level or volatility or a change in seasonal pattern are common examples. Anomaly detection depends on specific context. 

In this month’s installment in our Data and Machine Learning Workshop Series, RiskSpan Co-Founder & CIO Suhrud Dagli is joined by Martin Kindler, a market risk practitioner who has spent decades dealing with outliers.

Suhrud and Martin explore unsupervised approaches for detecting anomalies.

Suhrud Dagli

Co-founder and CIO, RiskSpan

Martin Kindler

Managing Director, RiskSpan


April 21 Webinar: Automated Prepayment Model Calibration Using Machine Learning

Recorded: April 21 | 1:00 p.m. ET

Manually tuning MBS prepayment models is messy. In what amounts to an elaborate trial-and-error exercise, modelers must frequently resort to subjectively selecting sub-populations to calibrate, running back-testing to see where and how the model is off, and then tweaking knobs and re-running the back-test to see the impacts. Rinse and repeat.

RiskSpan’s Janet Jozwik and Steven Sun present an approach for running a set of back-tests on MBS pools that automatically solves for the right set of tuners to align model results to actuals. Learn how, by automatically covering every feasible combination of model knobs possible, you can visualize for every pool the impact each knob combination has on:

  • Modeled prepay vs. actuals
  • Model error
  • Refi incentive and other pool features

Janet Jozwik

Managing Director, RiskSpan

Steven Sun

Director, RiskSpan


March 31 Workshop: Advanced Forecasting Using Hierarchical Models

Recorded: March 31 | 1:00 p.m. ET

Traditional statistical models apply a single set of coefficients by pooling a large dataset or for specific cohorts.

Hierarchical models learn from feature behavior across dimensions or timeframes.

Suhrud Dagli and Jing Liu host an informative workshop applying hierarchical models to a variety of mortgage and structured finance use cases, including:

  • Changes in beta and covariance of portfolios across time
  • Loan performance across geographies and history – e.g., combining credit performance data from 2008 with unemployment-driven credit issues in 2020.
  • Issuer-level prepayment performance

Suhrud Dagli

Co-founder and Chief Innovation Officer, RiskSpan

Jing Liu

Model Developer, RiskSpan


What Will Non-QM Underwriting Look Like After the Pandemic?

On January 21st, RiskSpan senior managing director Bill Moretti moderated a panel at IMN’s Non-QM Virtual Forum.

The discussion, entitled “Underwriting Credit Standards, Assessing Ability to Pay & Evaluating Default Risk: Are You Protecting Yourself Against a Second Wave or Going All Out?” featured a cross-section of industry participants. These included a rating agency (DBRS Morningstar), a wholesale originator (Oaktree Funding Corp.), an aggregator/securitizer (Annaly Capital Management) and two technology companies (RiskSpan and LoanScorecard), each of whom obviously approaches the underlying question from a slightly different perspective.    

Underwriting standards, of course, are best explored in the context of evaluating credit risk. Unprecedented market disruption in response to Covid clearly laid bare the fact that many (if not most) mortgage borrowers are not in a financial position to endure a significant curtailment to income for any sustained period. The discussion focused on what this means for new-origination underwriting standards after Covid.   

The panel tackled a number of questions, including: 

  • How is the market assessing risks in new loans given the current market conditions?
  • How are income declines considered? 
  • What role does forbearance play? 
  • Should underwriters be looking harder at borrower net worth or taking other assets into account? 
  • Should PPP payments be counted as borrower income? 
  • Should DSCR calculations be revisited or modified for investment-property borrowers? 
  • Is the market taking alternative and other non-traditional data into account when assessing credit risk? 

A review of non-QM performance in 2020 relative to that of prime and GSE (CRT) loans revealed some interesting insights: 

  • Non-QM loans reached a significantly higher 30-day DQ peak (13% in April and May) compared to 4% and 3% for prime and CRT loans, respectively. An analogous gap was observed prior to Covid, however. 
  • 60+ day DQ (including BK/FC/REO) showed something similar with non-QM loans peaking at 14% in June/July compared with 4% and 5% for prime and CRT loans, respectively. These rates improved by the end of the year but remain elevated relative to pre-Covid levels. The panelists attribute this to forbearance activity.  
  • CDRs began trending upward in July and August, reaching 10 bps across all classes. CRT CDRs spiked to 50 bps in September and October before retreating to 40 bps, while prime and non-QM CDRs ramped up to the 30 bps and 40 bps, respectively, by year-end. 
  • CPRs among non-QM loans held steady throughout the year at around 25%. Prime and CRT loans experienced a steady increase in CPR, rising from 20%-25% earlier in the year to approximately 45% by the end of the year. Record refinancing activity appeared to drive much of this. 

Partially in response to Covid, rating agencies have implemented changes in their requirements for structural features, including the following: 

  • Waterfall changed from pro–rata allocation to full sequential pay 
  • Triggers eliminated based on DQ, loss and credit enhancement 
  • DQ P&I advancing assumptions reduced from 4-6 months to 0-3 months 
  • Credit enhancement increased, especially among lower–rated tranches — excess spread and reserve account requirements are now required 
  • Rating scenario analyses and stress assumptions increased to reflect Covid forbearance assumptions 

The pandemic created a significant disruption for non-QM origination and acquisition. Some market participants struggled to adapt during the pandemic’s early months as funding and margin calls impacted mortgage buyers.  Aggregators who maintained strong relationships with their originators had more success maintaining funding commitments. These relationships were critical to maintaining overall market health and liquidity. An ability to adapt, allow forbearance and modifications, and work with borrowers was viewed as equally important.  

How is underwriting likely to evolve? 

The panelists agreed that a revamped underwriting process must consider different sources of income as well as borrower assets and reserves. 

Additional borrower requirements that have been proposed include the following: 

  • Consistency of income in the borrower’s work industry 
  • Additional weight accorded to other assets held by a borrower 
  • Consideration of PPP loans as borrower assets but not income 
  • Stricter underwriting for DSCR loans including a required reserve 
  • Additional scrutiny of loans made to foreign nationals 

The pandemic had an outsized effect on non–QM origination volume, which continues to experience headwinds from Agency-eligible production. There’s just no getting around the fact that, all else equal, brokers find it more profitable (not to mention easier) to focus on Agency production. The importance of specialization continues to be felt, as non–QM aggregators tend to focus more of their attention and efforts on “pure” Non–QM origination shops, as opposed to full-service mortgage bankers, which originate a mix of Agency and non-Agency mortgages. Non-QM underwriting standards will likely need to take this reality into account. 

What role will technology play? 

While not yet as ubiquitous as in Agency lending, front-end automated underwriting systems continue to make strides in the non-QM world. This growth in AUS consistency and efficiency is a critical component to creating a digital environment for mortgages and accelerating the approval process while maintaining strong risk management and compliance. 

The industry is crying out for a clean end-to-end loan acquisition solution for aggregators and other whole–loan portfolio investors. Investors are increasingly looking to get into whole loans, but the secondary whole–loan acquisition process is extremely demanding from an operational perspective. RiskSpan’s Edge Platform enables residential whole–loan buyers to outsource many of these functions. 

Beyond whole loans, non-QM securitization data and analytics continues to be a source of angst, due in part to inconsistent forbearance and modification reporting. RiskSpan is seeking to alleviate these pain points by working with clients to standardize and normalize reporting inconsistencies, particularly in the non-QM space. The goal is to provide a way for investors and other market participants to benchmark deals against one another, confident that delinquency, forbearance, and modification comparisons are truly apples-to-apples.  

Finally, the panel discussed industry efforts to improve clarity around mapping (or bucketizing) loan types. Doing this is challenging in the non–QM sector because there are so many (literally hundreds) different types of loan documentation requirements. Understanding these is vital to modeling credit risk. Mapping time series data based on the loan type is hard, RiskSpan is at the forefront of developing methodologies to speed and simplify analysis by logically mapping many different loan types into fewer buckets. 

Contact us for a free demo and to discuss how RiskSpan can combine its powerful Edge Platform with expert services to help you tackle your thorniest underwriting data and modeling challenges. 

        

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