medium · Asset-Backed Securities collateral
A $1.0B auto ABS pool is modeled at 1.2% ABS speed and reaches Month 24. The pool balance is now $250M. The analyst needs to calculate the 'Single Monthly Mortality' (SMM).
Which observation correctly describes the SMM's behavior over time in this deal?
- The SMM is always exactly one-twelfth of the annualized CPR figure under the ABS convention definition
- The SMM declines steadily over time because more seasoned, older loans carry progressively less incentive to prepay
- The SMM remains constant at exactly 1.2% throughout the entire scheduled life of the securitized transaction
- The SMM rises as the pool ages because the fixed ABS dollar amount is a larger share of the shrinking balance
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