Constant Default Rate - CDR

AAA

DEFINITION of 'Constant Default Rate - CDR'

An annualized rate of default on a group of mortgages, typically within a collateralized product such as a mortgage-backed security (MBS). The constant default rate represents the percentage of outstanding principal balances in the pool that are in default, which typically equates to the home being past 60-day and 90-day notices and in the foreclosure process.

The constant default rate analysis assumes that if a home is in foreclosure (a process that can take 12 months or more to complete), the interest and principal payments are being advanced into the MBS by the mortgage servicing company.

INVESTOPEDIA EXPLAINS 'Constant Default Rate - CDR'

The CDR method for evaluating losses is one of several methods used by analysts and company controllers to determine the current market value or asset value of a mortgage-backed security. The CDR method can account for both fixed-rate and adjustable-rate mortgages.

Another method is the Standard Default Assumption (SDA) model created by the Bond Market Association, but this is more suited to standard 30-year fixed mortgages. In the mortgage crisis of 2007-2008, the SDA model proved to have vastly underestimated the true rate of default; foreclosure rates hit multi-decade highs during that period.

RELATED TERMS
  1. Foreclosure - FCL

    A situation in which a homeowner is unable to make principal ...
  2. Pool Factor

    The percentage of the original principal that is left to be distributed ...
  3. Personal Finance

    All financial decisions and activities of an individual, this ...
  4. Mortgage Forbearance Agreement

    An agreement made between a mortgage lender and delinquent borrower ...
  5. Conditional Prepayment Rate - CPR

    A loan prepayment rate that is equal to the proportion of the ...
  6. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
Related Articles
  1. Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.
  2. Options & Futures

    Saving Your Home From Foreclosure

    Learn the tactics you can use to prevent your home from being repossessed.
  3. Mutual Funds & ETFs

    Who Is To Blame For The Subprime Crisis?

    From lenders to buyers to hedge funds, it appears everyone has blood on their hands.
  4. Personal Finance

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  5. Bonds & Fixed Income

    Should Junk Bond ETFs Be a Part of Your Portfolio?

    Should junk bonds be a part of your portfolio? Here's what you need to know.
  6. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.
  7. Professionals

    Vanguard Readies Muni Bond ETF

    Vanguard is set to roll out a muni bond ETF, the firm's first.
  8. Mutual Funds & ETFs

    Is the TLT ETF a Good Bet for the Long Run?

    Is the iShares 20+ Year Treasury Bond ETF (TLT) a good bet for the long run?
  9. Bonds & Fixed Income

    African Equities vs. Bonds: Risks and Rewards

    A look at the risks and rewards of exposure to African equities vs. bonds.
  10. Bonds & Fixed Income

    How Rate Hikes Will Affect Your Investments?

    An interest rate hike by the Fed, which will happen either during their June or September meeting, could impact your fixed income investments.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center