Benchmark CPR – Methodology Overview
An Opportunity to Develop a Complementary Metric: Introducing the Benchmark CPR™
Since we issued our first Mortgage-Backed Security (MBS) in 1981, Fannie Mae has been meeting the nation’s mortgage liquidity needs by offering a security that is attractive to investors because of its dependable cash flows. To achieve this, Fannie Mae sets standards and actively reviews market practices that best contribute to reliable prepayment speeds. The recent launch of the Uniform Mortgage-Backed Security (UMBS®) has introduced an additional requirement for prepayment alignment between Fannie Mae’s and Freddie Mac’s1 securities. As part of our continuous efforts to manage prepayment speeds more effectively, Fannie Mae developed our Benchmark CPR framework to facilitate proactive engagement with sellers and servicers. By its nature, this framework is flexible, allowing Fannie Mae to adapt to changing market conditions.
For Fannie Mae to manage our Single-Family business in a safe and sound manner, it is essential to have a unified metric that monitors entity-level prepayment speeds in relation to the cohort. Since late 2019, sellers and servicers have been able to track their own performance according to the Benchmark CPR framework — as well as that of other Fannie Mae sellers and servicers — on our seller/servicer reporting portal. The introduction of one consistent metric has resulted in simplified engagement with Fannie Mae as it relates to prepayment speeds. This has helped align expectations and mitigate confusion that could otherwise occur when referencing multiple metrics.
We are making our Benchmark CPR surveillance framework available to all market participants by launching the Benchmark CPR dashboard on Data Dynamics®, our free online analytics platform. Fannie Mae believes that transparency reinforces our ability to promote behavior that contributes to the liquidity and vitality of the MBS market. The Benchmark CPR dashboard allows all market participants including investors, sellers, and servicers to monitor prepayment speeds through the same lens as Fannie Mae, which we hope will align expectations and enhance confidence in cashflow predictability. Fannie Mae uses public monthly prepayment data to calculate the Benchmark CPR, enabling market participants to replicate the methodology and results.
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1 Collectively, the government-sponsored enterprises, or GSEs.