Questions:
Assume that a CMBS securitization consists of 5 loans:
Loan 1: $300,000,000 (35% out of trust)
Loan 2: $250,000,000
Loan 3: $100,000,000
Loan 4: $75,000,000
Loan 5: $50,000,000

The loans mature in 300 months, 240 months, 240 months, 300 months, and 120 months, respectively. What is the WAM, rounded to the nearest month?

Before closing, the issuer decides to securitize additional assets with the goal of achieving a Weighted Average Maturity (WAM) of 275 months.

The issuer has a large number of loans available with 300-month maturities. What is the approximate balance of 300-month loans that would need to be added to the original pool to bring the overall WAM to 275 months?

Reference answers:
To calculate the weighted average maturity (WAM), we need to determine the maturity of each loan by its size relative to the entire pool.

Since loan 1 is 35% out of trust, we only consider 65% of the $300,000,000 loan amount.

WAM = (195000000 / 670000000 * 300) + (250000000 / 670000000 * 240) + (100000000 / 670000000 * 240) + (75000000 / 670000000 * 300) + (50000000 / 670000000 * 120)
WAM = ~255.22 or 255 when rounded to the nearest month

To determine the balance of 300-month maturity loans the issuer needs to add to the existing pool to achieve a WAM of 275 months, we can use the following formula:

275 = ((670,000,000 × 255) + (X × 300)) / (670,000,000 + X)

X represents the balance of the new 300-month loans to be added.

Solving for X gives a value of 536,000,000.

Therefore, if the issuer wants the WAM of the new pool to be 275 months, they should add 536,000,000 in new loans with 300-month maturities to the original pool.