What is the Accept/Reject (A/R) pattern?

                                                        Return to FAMQ

The A/R pattern is used in Reject inference (as opposed to all performance inference) to understand how any new decision process (usually a new acquisition model) compares to the historical process. The idea is to look at a number of salient dimensions, known to be important in predicting risk, and compare the new process to the old process on these dimensions.

For example, if the historical process accepted 80% of the applicants with no severe delinquencies and accepted only 20% of the applicants with one severe DQ then we would hope that the new process would accept more than 80% with no DQ and fewer than 20% with one or more.

The following examples may help.

# Trade Lines		History			Proposed
#	Count	Accept	Reject	Accept %	Accept	Reject	Accept %
0-2 TL	2,000	1,000	1,000	50%	500	1,500	25%
2-4 TL	4,000	2,500	1,500	63%	2,200	1,800	55%
5-8 TL	4,000	3,000	1,000	75%	3,600	700	90%
8+	3,000	2,500	500	83%	2,700	200	90%
Total	13,000	9,000	4,000	69%	9,000	4,000	69%

In the above example we can see that in the historical pattern there was higher acceptance rate with more trade lines (breadth of credit experience). In the proposed pattern, the difference is even more dramatic.

# 30 Day DQ		History			Proposed
#	Counts	Accept	Reject	Accept %	Accept	Reject	Accept %
0	7,000	6,000	1,000	86%	6,100	900	87%
1 DQ	4,000	2,700	1,300	68%	2,660	1,340	67%
2 DQ	1,000	200	800	20%	150	850	15%
3+ DQ	1,000	100	900	10%	90	910	9%
Total	13,000	9,000	4,000	69%	9,000	4,000	69%

In the above example, we see that historically, the more DQ’s the fewer accepts. In the proposed process this pattern is a bit more exaggerated.

This pattern comparison should be done for at least two variables in each of the major risk dimensions. (See “Error: Reference source not found”)

The A/R pattern is based on the full TTD population sampled during the development window, it includes the booked loans, the rejects, and those that were accepted (approved) but walked away (turned down the loan). The A/R history pattern looks at those that were accepted and booked AND those that were accepted and walked away vs. the rejects. This process does not look at the Out of Time sample or any performance on the known (booked or active) accounts.

                                                        Return to FAMQ