What are the WAC and WAM of a pass-through security?
What will be an ideal response?
Not all of the mortgages that are included in a pool of mortgages that are securitized have the same mortgage rate and the same maturity. Consequently, when describing a pass through security, a weighted average coupon rate and a weighted-average maturity are determined.
A weighted-average coupon rate (WAC) is found by weighting the mortgage rate of each mortgage loan in the pool by the amount of the mortgage outstanding. A weighted average maturity (WAM) is found by weighting the remaining number of months to maturity for each mortgage loan in the pool by the amount of the mortgage outstanding.
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