Most of the subprime mortgage pools Scion shorted will likely see maximum foreclosures a little over two years into the life of the pool.
Unresolvable The public record could not settle it.
Prediction: Statements about events outside the person's control, checked once they fell due: did they come true?
Said for an organisation they lead or work for; it counts on both records.
What would count as true or false
True: foreclosures (foreclosure starts or foreclosure inventory as a share of the original pool) in most of the subprime pools Scion shorted, or in comparable 2005-2006 vintage subprime pools, peaked a little over two years after the pool was issued, that is at roughly 24-30 months of seasoning. Mostly true: foreclosures peaked at about 20-36 months for most pools, or the timing holds for many but not clearly most pools. Mixed: the timing holds for about half of the pools. Mostly false: most pools peaked well outside this window (under 18 months or over 36 months), with only some matching it. False: foreclosures in these pools generally peaked far from two years, for example within the first year or after four or more years.
Set before the research began.
Evidence (10)
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E1 The Past, Present, and Future of Subprime Mortgages Federal Reserve Board (FEDS working paper 2008-63) · 3 December 2008
“The probability of default, however, increases up to a loan age of 30 months, holds constant up to 60 months, declines up to 120 months, then holds constant for the remaining life of the loan.”
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E2 The Past, Present, and Future of Subprime Mortgages Federal Reserve Board (FEDS working paper 2008-63) · 3 December 2008
“conditional on having a large number of prepayments around the first mortgage rate reset date, default hazard rates tended to rise slightly after the first mortgage rate reset.”
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E3 Understanding the Subprime Mortgage Crisis Federal Reserve Bank of St. Louis / NYU Stern (Demyanyk and Van Hemert), draft · 5 December 2008
“the most common fixed period is 24 months, followed by 36 months.”
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E4 Understanding the Subprime Mortgage Crisis Federal Reserve Bank of St. Louis / NYU Stern (Demyanyk and Van Hemert), draft · 5 December 2008
“Since we focus on delinquency in the first 17 months, we expect the initial mortgage rate to be an important covariate.”
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E5 Understanding the Subprime Mortgage Crisis Yuliya Demyanyk and Otto Van Hemert (working paper; hosted by FRBSF) · 5 December 2008
“We see that the odds of first-time delinquency peaks around age of 7–13 months.”
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E6 Understanding the Subprime Mortgage Crisis Yuliya Demyanyk and Otto Van Hemert (working paper; hosted by FRBSF) · 5 December 2008
“The delinquency rate is defined as the cumulative fraction of loans that were past due 60 or more days, in foreclosure, real-estate owned, or defaulted, at or before a given age.”
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E7 The Past, Present, and Future of Subprime Mortgages Board of Governors of the Federal Reserve System (FEDS working paper 2008-63) · 3 December 2008
“The probability of default, however, increases up to a loan age of 30 months, holds constant up to 60 months, declines up to 120 months, then holds constant for the remaining life of the loan.”
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E8 Understanding the Securitization of Subprime Mortgage Credit (Staff Report no. 318) Federal Reserve Bank of New York (Ashcraft and Schuermann) · March 2008
“For example, the typical deal realizes 33% of its defaults by month 13, 59% by month 23, 75% by month 35, and 100% by month 60.”
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E9 Data Corner: Understanding Subprime Mortgage Defaults Federal Reserve Bank of Boston
“But for the more recent loans, the big jump in the default rate comes before the reset occurs (see Figure 1).”
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E10 Data Corner: Understanding Subprime Mortgage Defaults Federal Reserve Bank of Boston
“No significant increase in defaults is seen near the actual reset date of 24 months.”
Reasoning
No evidence item reports when foreclosures, as a share of the original pool, peaked in the pools Scion shorted or in comparable 2005-2006 subprime pools. E1/E7 say the probability of default rises up to a loan age of 30 months and then holds constant up to 60 months; they describe default rather than foreclosure as a share of the pool and do not give a foreclosure peak. E5 places the peak in first-time delinquency at 7-13 months, and E9/E10 say defaults jumped before the 24-month reset. Both measure delinquency or default rather than foreclosure, which comes later. E8 gives only cumulative shares of defaults over time. Taken together, the evidence does not establish when foreclosures peaked.
Cite this claim
Michael Burry, “Most of the subprime mortgage pools Scion shorted will likely see maximum foreclosures a little over two years into the life of the pool.” (said 2006). Verdict: unresolvable. Reliability API, claim c_d3cd98adc755, method 0.1.0+c876030c, dataset release v1.1.2. https://epistacklabs.com/claims/c_d3cd98adc755
This claim is in dataset release v1.1.2, with the same verdict.
Reply to this claim
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Verdicts are made automatically; how verdicts are made.