January 22nd, 2023, 10:37 pm
I think it’s a combination of the fact that for CMOs, it is relatively expensive to map prepayment/default behavior to cash flows, and that the standards were established decades ago, when CPU time was at a premium. It obviously doesn’t make much sense. Then again, parts of the CMBS market operates on a standard of 0/0 (as in zero defaults, zero prepayments). That’s really cheap to compute, but perhaps not all that helpful.