Constant Default Rate - CDR

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.

BREAKING DOWN '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. Serious Delinquency

    When a single-family mortgage is 90 days (or more) past due and ...
  2. Foreclosure Filing

    The initial legal process of selling a mortgaged property that ...
  3. Current Face

    The current par value of a mortgage-backed security (MBS). Current ...
  4. Mortgage Bond

    A bond secured by a mortgage on one or more assets. These bonds ...
  5. Mortgage Rate

    The rate of interest charged on a mortgage. Mortgage rates are ...
  6. Mortgage Excess Servicing

    The percentage of the monthly cash flow that remains after the ...
Related Articles
  1. Personal Finance

    How Interest Rates Affect the Housing Market

    Understand how rate changes can affect home prices and learn how you can keep up.
  2. Investing

    What Happens in a Default?

    Borrowers are in default when they don’t honor a debt, whether their failure is intentional or not.
  3. Markets

    Credit Crisis: What Caused The Crisis?

    By Brian PerryIn this chapter, we'll examine the causes of the credit crisis, starting with the decline in the housing market that eventually led to increased levels of mortgage defaults. These ...
  4. Personal Finance

    What Happened To The MBS Market?

    Find out how the fall of mortgage-backed securities has changed the financial landscape.
  5. Managing Wealth

    20 Investments: Mortgage-Backed Securities

    What Is it? A mortgage-backed security (MBS), also known as a "mortgage pass-through" or a "pass-through certificate", is an investment instrument that represents ownership of an undivided interest ...
  6. Investing

    Avoid Foreclosure: How To Handle An Underwater Mortgage

    Foreclosure is the biggest fear of any struggling homeowner. These tips just might save your credit rating.
  7. Personal Finance

    Behind the Scenes of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  8. Trading

    Short Sales And Foreclosures: When It's Time To Move On

    Sometimes it's better to cut your losses, but foreclosures and short selling can have devastating impacts on your credit score.
  9. Markets

    Junk Bond

    Find out more about these bonds that have a high risk of default.
  10. Markets

    The Rise And Demise Of New Century Financial

    A case study in how poor planning toppled a subprime mortgage giant.
RELATED FAQS
  1. What level of default rate is typical for the credit services industry?

    Learn how default rates affect businesses in the credit services industry, and what rates are considered normal for a company ... Read Answer >>
  2. What are the best ways to invest in mortgage-backed securities (MBS)?

    Find out how you can start investing in real estate through mortgage-backed securities. Read Answer >>
  3. In the beginning of this year, the total par value of all CCC-rated bonds were $12 ...

    The correct answer is: d) (i) Default Loss Rate = [($1.3 billion - $625 million)/$1.3 billion] = 51.9% (ii) Dollar Default ... Read Answer >>
  4. What is securitization?

    Securitization is the process of taking an illiquid asset, or group of assets, and through financial engineering, transforming ... Read Answer >>
  5. What role did securitization play in the U.S. subprime mortgage crisis?

    Learn how the securitization of sub-prime mortgages into asset-backed securities fueled the real estate market crash in 2 ... Read Answer >>
  6. What's the difference between a collateralized mortgage obligation (CMO) and a mortgage-backed ...

    Find out more about collateralized mortgage obligations and mortgage-backed securities and the difference between the two ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center