Single Monthly Mortality

Single Monthly Mortality (SMM) refers to a method used in mortgage-backed Securities (MBS) to measure the rate at which borrowers prepay their mortgages. It represents the percentage of the remaining principal that is paid off in a given month due to prepayments or defaults.

For example, if a pool of mortgages has an outstanding balance of $1,000,000 and $50,000 of that balance is prepaid in a month, the SMM would be calculated as:

• SMM = (Prepayments / Remaining Principal) = ($50,000 / $1,000,000) = 0.05 or 5%

Another case could be a mortgage-backed security with a remaining principal of $2,000,000. If $100,000 is prepaid in a month, the SMM would be:

• SMM = ($100,000 / $2,000,000) = 0.05 or 5%

In the context of MBS, SMM is crucial for investors as it affects the Cash Flow and valuation of the Securities.