Design a hierarchical MF delinquency forecasting system

Quick Overview

This question evaluates competency in hierarchical time-series forecasting, leakage-safe feature engineering and validation, regime-shift detection, model comparison and reconciliation, and production-ready evaluation and monitoring for multifamily loan delinquency prediction while explicitly addressing lookahead bias.

Design a hierarchical MF delinquency forecasting system

Company: Freddie Mac

Role: Data Scientist

Category: Machine Learning

Difficulty: hard

Interview Round: Onsite

You're tasked with forecasting 90+ day delinquency rates for multifamily loans at both the MSA level and national aggregate 1–12 months ahead. Data available: monthly loan performance (loan_id, msa, property_type, unpaid_principal, interest_rate, LTV, DSCR, origination_date, delinquency_status), property financials (NOI, occupancy), macro series (msa_unemployment, CPI, mortgage_rates), and dated policy shocks. Design a hierarchical forecasting system that: (a) produces coherent forecasts across levels (compare bottom-up vs MinT reconciliation and when each is preferred), (b) engineers leakage-safe features (lags, rolling windows, calendar effects, external regressors; address real-time vs revised macro data), (c) uses expanding-window CV with an embargo while preventing cross-sectional leakage when loans migrate across MSAs, (d) detects/handles regime shifts (e.g., abrupt policy change or COVID-like shock) via changepoint tests or covariate-shift diagnostics and ensembling across regimes, (e) compares an XGBoost model with monotonic constraints to a regularized dynamic panel model with FE and AR(1) errors—state tuning, selection, and interpretability strategy, and (f) defines evaluation/monitoring: WAPE by MSA, calibration of delinquency buckets, CRPS for probabilistic outputs, SHAP stability, drift alerts, and retrain cadence. Be explicit about avoiding lookahead bias at every step.

Quick Answer: This question evaluates competency in hierarchical time-series forecasting, leakage-safe feature engineering and validation, regime-shift detection, model comparison and reconciliation, and production-ready evaluation and monitoring for multifamily loan delinquency prediction while explicitly addressing lookahead bias.

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Freddie Mac
Oct 13, 2025, 9:49 PM
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Forecasting 90+ Day Delinquency Rates for Multifamily Loans: Hierarchical, Leakage-Safe System Design

Context

You need to forecast 90+ day delinquency rates for multifamily loans 1–12 months ahead at both the MSA level and the national aggregate. Coherent forecasts must sum/aggregate correctly across the hierarchy. Data are monthly and include:

  • Loan performance: loan_id, msa, property_type, unpaid_principal (UPB), interest_rate, LTV, DSCR, origination_date, delinquency_status.
  • Property financials: NOI, occupancy (note reporting lags).
  • Macro series: msa_unemployment, CPI, mortgage_rates (potentially revised ex post; consider real-time vintages).
  • Dated policy shocks with known effective dates.

Define the target as the UPB-weighted 90+ day delinquency rate at each horizon.

Task

Design a hierarchical forecasting system that:

  1. Coherent forecasts across levels
    • Compare bottom-up vs. MinT reconciliation and explain when each is preferred.
  2. Leakage-safe feature engineering
    • Lags, rolling windows, calendar effects, and external regressors.
    • Address real-time vs revised macro data and reporting lags to avoid lookahead bias.
  3. Expanding-window cross-validation
    • Use an embargo around splits; prevent cross-sectional leakage when loans migrate across MSAs.
  4. Regime shift handling
    • Detect and handle regime shifts (e.g., abrupt policy changes, COVID-like shocks) via change-point tests or covariate-shift diagnostics and ensembling across regimes.
  5. Model comparison
    • Compare an XGBoost model with monotonic constraints to a regularized dynamic panel model with fixed effects and AR(1) errors. Describe tuning, selection, and interpretability strategies.
  6. Evaluation and monitoring
    • Define WAPE by MSA, calibration of delinquency buckets, CRPS for probabilistic outputs, SHAP stability, drift alerts, and retrain cadence.

Be explicit about avoiding lookahead bias at every step.

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