WALA figures are one of the three primary elements on which mortgage pool collateral evaluation is based; the other two are the identity of the issuer or guarantor and the gross weighted average coupon for the underlying mortgage investments. Investment pools comprised of federally guaranteed loans tend to be a safer investment, but may be slower to produce profits than comparable conventional mortgage loan pools.
Gross weighted average coupon figures, along with WALA, are good indicators of the likelihood that loans will be repaid early and thus provide limited potential for profits to the investor.
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WALA is derived by multiplying the original principal balance of each mortgage in the pool by the number of months since the mortgage loan was originated. Conversely, WAM is calculated by adding up the remaining months on each mortgage and weighting it according to the financial value that each mortgage currently holds. These agencies purchase mortgages on the secondary mortgage markets and then repackage and resell them as mortgage-backed securities to large scale investors. WALA figures help investors determine the relative values of various mortgage-backed investment options in order to identify the best prospects for investment.
As older mortgages reach maturity, newer ones are added to maintain the overall size of the investment pool; this changes the underlying figures upon which WALA calculations are based. Some of the mortgages held in the security are likely to default, further skewing the WALA calculations. As a result, WALA is usually refigured by investment analysts on a regular basis in order to provide the most accurate picture of the overall investment as compared to others of the same type.
These recalculations typically take place each month and are used to calculate ongoing returns on investment from the overall mortgage pool; this allows investors to make informed financial decisions when investing in the mortgage-backed securities market. All rights reserved.
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Weighted average loan age definition Weighted average loan age , or WALA , is a dollar weighted average loan age of the loans which comprise a mortgage backed security, or other pooled security. The WALA figure typically is considered to provide a more accurate assessment of the maturity of a mortgage-backed security investment than the weighted average maturity WAM.
WALA vs. Limitations of WALA The constituent mortgages held in a mortgage-backed security or portfolio of securities do not remain constant over time. Thus the interest rate on the consolidation loan that combined these three loans would then be 6. Notice that this interest rate is above the lowest interest rate and below the highest interest rate.
The weighted average interest rate is always between the highest and lowest interest rates. The weighted average interest rate is.
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