Skip to content
All library documents

Understanding SMM and CPR in Mortgage Prepayment Modeling

Article Quant Q&A · Author: Andrew
Read the original

Summary

The note clarifies two measures used in mortgage-backed security prepayment modeling. SMM, or single-month mortality, represents a monthly voluntary prepayment rate, while CPR, or conditional prepayment rate, expresses an annualized rate. Their relationship is given by converting the monthly rate over twelve periods: CPR equals one minus one minus SMM raised to the twelfth power.

Neither measure is inherently a model or inherently observed data. Either can be calculated from estimated prepayments or from actual pool prepayment experience, depending on how the rate is obtained. The answer says that historical data sources depend on the pool type, such as agency or specified pools, and mentions CPR&CDR as one possible source. It does not provide a source comparison, detailed retrieval instructions, or a specific historical dataset, so availability and suitability for a particular MBS modeling task remain unresolved.

Key ideas

  • SMM measures voluntary prepayment over a single month, while CPR expresses the rate annually.
  • CPR is derived by compounding the monthly survival rate across twelve months.
  • SMM and CPR can describe either estimated prepayments or observed pool experience.
  • Suitable historical data sources depend on the type of mortgage pool being modeled.
  • The discussion names a possible data source but does not assess its coverage or suitability.

Tags

Fixed incomeStatisticsRisk management
Full text
# mortgage prepayment model


# mortgage prepayment model












I am trying to develop my own MBS prepayment model. I am confused by the terms SMM and CPR. Are they estimates/models in themselves or are they ACTUAL data for the MBS pool. where can I find actual historical MBS prepayment data?

## Answer by Joshua Ulrich (score 6)

https://quant.stackexchange.com/a/4122

SMM stands for single-month mortality and CPR stands for constant (or conditional) prepayment rate. They're both units of voluntary prepayment rates ($CPR = 1-(1-SMM)^{12}$). They could be based on either estimated or actual prepayments.

Where to get actual MBS prepayment data will depend on what type(s) of MBS pools you're modeling (e.g. agency, specified, etc.). CPR&CDR is one source I can think of off the top of my head.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.