Weighted Average Loan Age (WALA)

What is WALA?

Weighted Average Loan Age (WALA) measures the average age of loans in a mortgage-backed securities (MBS) pool, expressed in months. The age of each loan is weighted by its dollar amount (either original balance or remaining principal), producing a single metric that summarizes how long, on average, the loans have been outstanding.

Why it matters

WALA helps investors and analysts estimate:
* How long it will take for a pool’s principal to be repaid.
* The pool’s seasoning—older pools behave differently than newer ones.
* Prepayment risk and cash‑flow timing, which affect MBS valuation and yield.

How WALA is calculated

WALA is computed as the weighted average of loan ages:

WALA = (Σ (loan_balance_i × loan_age_i_months)) / Σ (loan_balance_i)

Notes:
* loan_balance_i can be original balance or current outstanding principal—use of one or the other should be consistent across comparisons.
* loan_age_i_months is the number of months since origination for each loan.

Example:
– Loan A: $100,000, age 24 months
– Loan B: $200,000, age 12 months
– Loan C: $50,000, age 36 months

Numerator = 100,000×24 + 200,000×12 + 50,000×36 = 6,600,000
Denominator = 350,000
WALA = 6,600,000 / 350,000 ≈ 18.9 months

Relationship to Weighted Average Maturity (WAM)

WALA and Weighted Average Maturity (WAM) provide complementary information:
* WALA indicates how long loans have existed (seasoning).
* WAM indicates the average remaining time until maturity.

For pools where original loan terms are the same and weighting is consistent, WALA + WAM will approximate the original loan term. They are distinct measures, not mathematical inverses.

Practical applications

• Pricing and trading MBS: WALA affects expected cash flows and prepayment assumptions.
• Risk management: Seasoning influences prepayment speeds—newer pools often show different prepayment behavior than seasoned pools.
• Portfolio comparison: Helps compare pools on a like-for-like basis (when same weighting convention is used).

Limitations and caveats

• Aggregation: WALA is an average and hides the distribution of ages; two pools with the same WALA can have very different age profiles.
• Weighting choice: Using original balance vs. current outstanding principal can produce different WALA values.
• Not a complete risk measure: WALA does not capture borrower credit quality, interest-rate sensitivity, geographic concentration, or other drivers of prepayment behavior.
• Changing dynamics: Prepayment behavior depends on interest rates, borrower incentives, and economic conditions—WALA alone cannot predict prepayments.

Key takeaways

• WALA summarizes the average age of loans in an MBS pool, weighted by dollar amounts.
• It is useful for assessing seasoning and informing prepayment and cash‑flow estimates.
• Use WALA together with WAM and other pool characteristics for a fuller picture of MBS risk and valuation.