Absolute Prepayment Rate
Absolute Prepayment Rate. The absolute prepayment rate is the standard measure of Prepayment rates in the auto-loan sector.
ABS measures the monthly rate of loan prepayments as a percentage of the original pool balance.
ABS is defined by the following formula where SMM refers to Single Monthly Mortality, which measures the percentage of dollars prepaid in a given month expressed as a percentage of the scheduled loan balance.
Issues and Challenges
The ABS measurement differs from Conditional Prepayment Rate (CPR) used in the mortgage industry, which measures prepayment as an annualized percentage of the current pool balance.
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