Convert CPR, SMM & ABS (APS)

We have already discussed Constant Prepayment Rate (CPR) and Single Monthly Mortality Rate (SMM). Another prepayment rate is the Absolute Prepayment Speed (APS), used mostly for  securities backed by auto, truck, and RV loans. The acronym for Absolute Prepayment Speed (APS) is also referred to as ABS, which is confusing because ABS is also the acronym for Asset-Backed Security. I am using ABS in this post and in the workbook “CPR-SMM-ABS”. Automobile asset-backed securities normally use ABS, rather than CPR, due to the shorter term of auto loans. An auto loan, unlike a long-term mortgage loan, typically starts off with higher principal payments, so they amortize quicker. Auto loans are less sensitive to interest rate swings, because there is normally not a big enough savings to entice someone to refinance. Both CPR and ABS use SMM for the monthly prepayment rate, the difference is that CPR is a percent of the remaining balance, where ABS is a percent of the original balance. This makes the SMM rate for ABS  increase each month. You will notice on the conversion sheet that the age of the loan (in months) is required for ABS.

ABS  = SMM/(1+SMM*(Loan Age-1))

SMM  =1-(1-CPR)^(1/12)

CPR = 1-(1-SMM)^12

I have never worked  directly  with  auto  loan securitization, but I assume that if I wanted to use ABS prepayments on a new pool, it would look something like below. If you disagree, please let me know.

Download workbook “CPR-SMM-ABS” from:

Downloads Written in Excel 2013