It is said that WAM of pool of ABS is 354 months? Does is means that they were originated 354 months ago?
Weighted average maturity of the loans
Hehe I know the abbreviation:)
I meant, which month we should use to calculate CPR here, given that WAM is 354 months?
If the total life of the pool is 360.
In the month of issue, the WAM will be 360, so the loan is seasoned by 0 months.
1 month after issue, the WAM will be 359, the loan is seasoned by 1 month.
A WAM of 354 will imply that the loan is seasoned by 6 months
so your CPR = 0.2% * number of months loan seasoned * prepayment speed.
You should however, take care that if you were given a WAM of 354 months, and asked for the expected prepayment next month, you will be using 7 months in your calculation, even though the loan is only seasoned by 6 months
Thank you for this bloodline.
In terms of prepayments, I try not to base on formulas, as it is easy to mess things up, by simply apply the concept of amonunt available to prepay.
Confused here. This pool is over 30 months, however we still multiply .2% by the months seasoned x prepayment speed.
How is that different from months seasoned/30 x prepayment speed?
Can someone please explain, I know I am getting the wires crossed somewhere.
help please^^^^^
WAM started at 360, not 0. So a WAM of 350 hasn’t gone 30 months yet.
Guys in the CFA mock exam (morning) it is said that a loan of WAM 243 is seasonsed for 17months … if we follow the normal convention shouldnt it be 117?
Thank you.
IMO should be 117 as 12 months x 30 years = 360 months
CFA institute 
Yeah, that was not correct.
In my opinion, the quality of the mock exam is a huge embarassment to CFA Institute
If you assume that total loan life = 30 years = 360 months and the WAM, which by all definitions refer to the weighted average maturity of the remaining loan in the pool = 243, then it should make sense that the loan has been expended by 360-257 = 117
and your CPR, assuming 250 PSA should be 0.2% * 30 * 2.5 = 15%
and SMM should be 1-(1-0.15)^1/12 = 1.3%
Kobi thank you for your reply. So in that case the CPR would be 6% not 0.2* 17 right? and as a consequence the SMM changes.
This is not included in the errata.
There are three ways the mistake could have been made
either WAM is not correct
or the total life of the pool is not correct
or the implied SMM given is not correct
Somehow, i have this gut feeling that someone who has had a bad day with the wife, while setting the questions calculated an implied SMM of 117 and thought he saw 17. I can’t think of anything else beyond sheer carelessness, and even more gutting is that CFAI cannot be duely diligent enough to proof read and send out those questions to nervous candidates, in the process wasting huge amount of candidate’s time trying to figure out what could be wrong.
So confused…