Single Monthly Mortality - SMM


DEFINITION of 'Single Monthly Mortality - SMM'

In mortgage-backed securities (MBSs), this is the percentage of the principal amount of mortgages that are prepaid in a given month. For investors of MBSs, prepayment of mortgages is usually undesirable since future interest is foregone.

This is more broadly referred to as "prepayment risk." Due to the importance of prepayment risk, single monthly mortality was developed as a metric for tracking prepayments in the mortgage pool.

BREAKING DOWN 'Single Monthly Mortality - SMM'

Prepayment hinders the returns for MBS investors because mortgages are normally prepaid using 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.

The mortgage holders in the MBS may refinance at lower interest rates, and then pay off the mortgage in the MBS pool. Now the investor has their money back and must reinvest the funds in a lower interest rate environment.

  1. Mortgage Putback

    The forced repurchase of a mortgage by an originator from the ...
  2. Prepayment

    The satisfaction of a debt or installment payment before its ...
  3. Refinancing Risk

    1. The risk that an early unscheduled repayment of principal ...
  4. Mortgage-Backed Security (MBS)

    A type of asset-backed security that is secured by a mortgage ...
  5. Prepayment Risk

    The risk associated with the early unscheduled return of principal ...
  6. Prepayment Model

    A model used to estimate the level of prepayments on a loan portfolio ...
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