• • • • BREAKING DOWN 'Single Monthly Mortality - SMM' Single monthly mortality is sometimes confused with the scheduled principal prepayments. The servicer records for an MBS usually provide the scheduled principal repayments that are set for the pool when the MBS is created. Single monthly mortality refers to the principal prepayments that occur over that amount, essentially taking the total principal paid, subtracting the scheduled principal payments and dividing by the outstanding balance that was scheduled for the month (as opposed to the actual) to get a percentage of prepayment. Single Monthly Mortality and Prepayment Risk The single monthly mortality will fluctuate from month to month according to borrower refinancing, accelerated payments and so on.
Prepayment hinders the returns for MBS investors because mortgages are normally prepaid using a refinancing loan, and this happens primarily when interest rates have fallen. So while an investor in an MBS believes they have locked in a higher yielding investment in a low rate environment, they may in fact have the carpet pulled out from under them. As a result, investors in mortgage-backed securities are always concerned about the on their investment, and single monthly mortality provides them a metric to show whether risks are going up, going down or leveling off.
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Single Monthly Mortality, Constant Prepayment Rate and Prepayment Ramps Single monthly mortality can be annualized into the, which gives the annual percentage rather than a monthly snapshot. MBS investors can switch between the two during important points in their holding’s life span. For example, if interest rates decline over a period of time, an MBS investor will usually watch the SMM to see whether or not is setting in. Similarly, there are the first 30 months of a mortgage-backed security’s life where it is considered “on the ramp” and during which SMM and CPR are expected to increase before leveling off once the MBS is “off the ramp” after 30 months. The caveat with the prepayment ramps is that they are based on the from the 1980s. Although the broad outline of this model holds up — mainly that there are two phases to an MBS lifespan — the mortgage market is a different place now, and public awareness of refinancing and interest rates is more ubiquitous than when the PSA model was created. The length of the ramps is believed to be much shorter now, as people are quicker to refinance when rates go down.
Many forms of consumer debt, such as home mortgages, credit card debt and auto loans, permit the borrower to pay down the indebtedness at an accelerated rate or to retire the debt early with a single payment. If a homeowner decides to sell her home, she will use the proceeds of the sale to retire any outstanding mortgage on the home. If someone making payments on an auto loan receives a year-end bonus at work, he may use it to pay down the debt. For a lender, such prepayments are desirable if interest rates have risen since a loan was made. They are undesirable if interest rates have fallen. For most forms of consumer debt, prepayment rates exhibit little correlation with interest rates.
They are a source of some uncertainty for the lender, but they do not pose significant risk. An exception is mortgages. Because homeowners with fixed-rate mortgages tend to refinance their mortgages when interest rates drop, there is a pronounced negative correlation between the level of interest rates and prepayment rates on fixed-rate mortgages. This poses a significant risk—called prepayment risk—for mortgage originators.
What you need to convert a SMM file to a PDF file or how you can create a PDF version from your SMM file. Files of the type SMM or files with the file extension.smm can be easily converted to PDF with the help of a PDF printer. A PDF printer is a virtual printer which you can use like any other printer. SMM is converted to CPR in the usual method. CPR for 12 months is computed two ways: First, CPR is computed as a simple average of the SMM for the 12 months, then converted to CPR.
First, CPR is computed as a simple average of the SMM for the 12 months, then converted to CPR. Simple invoice and inventory software. Second, CPR is computed for the 12 month period using the exact Bond Market Association standard formulas from.
If an originator transfers its mortgages to investors in the form of a mortgage-backed security, it also transfers the prepayment risk to those investors. Because of the significance of prepayment for mortgage-backed securities, the industry has developed metrics for prepayment. These apply to a pool of fixed-rate mortgages collateralizing a mortgage-backed security. The most basic metric has a distinctly actuarial name. It is called single monthly mortality (SMM). It indicates, for any given month, the fraction of mortgages principal that had not prepaid by the beginning of the month but does prepay during the month. For computational purposes, if a mortgage does prepay in a given month, its scheduled principal payment for that month is not considered part of the prepayment.