The WAM and WALA values are expected to change by one every month.
WAM, or weighted average time to maturity, is expected to decrease by one month with every month that passes, because the underlying loans are one month closer to their maturity date.
WALA, or weighted average loan age, is expected to increase by one month with every month that passes, because the underlying loans are one month further from their issue date.
Prepayments can alter the behavior of these changes. There are two types of prepayments; one is partial prepayments, sometimes called curtailments, where an underlying loan has principal paid down in addition to the scheduled amount. The other is a full prepayment of an underlying loan, where the mortgage is fully prepaid due to refinancing or home sale or, less likely, a homeowner winning the lottery, for example.
| Loan Prepays Fully | Loan Prepays Partially | |
|---|---|---|
| WAM | Lengthens if loan maturity < WAM | Shortens due to shorter loan maturity |
| Shortens if loan maturity > WAM | ||
| WAC | Increases if loan coupon < WAC | |
| Decreases if loan coupon > WAC | ||
| WALA | Increases (older) if loan age < WALA | |
| Decreases (younger) if loan age > WALA | ||
When you view the details for a security using eMBS, you can view the history for that security by selecting the "History" button. Then from the Factor History Page, you can see the Wac/Wam/Wala History by selecting that button.
Beside both the Wam and Wala columns is a Change column that shows the deviation from the expected change of 1m per month. Unexpected changes to the WAM either lengthened or shortened the pool's time to maturity; unexpected changes to the WALA cause the pool to be either younger or older.
The WAM is lengthened if the new WAM is less than the expected WAM, meaning it decreased by more than one per month. The WAM is shortened if the new WAM is greater than the expected WAM, meaning it increased or stayed constant.
The WALA is older if the new WALA is greater than expected WALA, meaning it increased by more than one in a given month. The WALA is younger if the new WALA is less than the expected WALA, meaning it decreased or stayed constant instead of increasing by one in a given month.
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