Conditional prepayment rate (CPR) is calculated using monthly data. For a given month, the single monthly mortality rate (SMM) is first calculated:

where 

  • Unscheduled Principal is actual principal paid less the scheduled principal, floored at zero
  • Scheduled Principal* is the amount of principal due
  • Start of Month Balance is the sum of all active loan balances at the beginning of the month, and excludes any defaulted/charged-off loans from previous periods


SMM is then annualized to obtain CPR:


or


dv01 accounts for the lifetime of payments for each loan when calculating CPR. In the case where a loan has been underpaying its scheduled payments and then makes a large unscheduled payment, no prepayment will be calculated if the aggregate principal paid is still behind schedule.

In calculating rolling CPR, the following equation is used:

where n is the number of months of data used. The calculation compounds each month’s CPR, then annualizes the resulting product.



*In order to normalize prepayment statistics, dv01 uses amortization recasting based on actual performance results. This uses the actual current balance of each respective loan for each month and will adjust future scheduled principal for loans that have either curtailed or missed payments.


*dv01 also offers additional CPR variations, including:

  • CPR weighted over original balance: A calculation of CPR that adjusts the prepayment rate based on the original balance of the loans, providing a view of prepayment behavior in relation to initial principal amounts.
  • CPR specific to only settled purchases (for whole loan portfolios): This CPR calculation filters out any unsettled transactions, focusing exclusively on loans that have reached final settlement. This approach can provide a clearer picture of prepayment rates specifically within the fully acquired portion of the portfolio.
  • CPR adjusted for principal received: In this variation, CPR is calculated based on actual principal payments received rather than expected principal payments. This approach provides a more accurate view of prepayment behavior by reflecting the true principal flow over time, as opposed to relying on projected or static payment amounts.


For additional CPR variations not immediately available, please reach out to your dedicated account manager or dv01 support for further assistance.