What is Seasoning?
Seasoning refers to how long a loan has been outstanding since origination, measured in months. Seasoning affects both prepayment and default behavior in predictable patterns. New loans (0-12 months) typically have low prepayment and low default rates. As loans season (12-36 months), both prepayment and defaults ramp up; borrowers establish payment history and those who cannot pay begin to default. Highly seasoned loans (60+ months) have survived the stress period and tend to have lower default rates. In prepayment, seasoning follows the PSA ramp concept: prepayment increases with loan age as borrowers build equity and become more likely to move or refinance.
How LoanBook Uses Seasoning
LoanBook applies each loan's age in both the Prepay Model (a residential seasoning ramp on the turnover channel that reaches full speed by month 30) and the Default Model (a seasoning term in the Residential default hazard that levels off at 72 months, and lifecycle curves for other sectors).
Frequently Asked Questions
Is a seasoned pool better than a new pool?
Generally yes, for credit risk; a seasoned pool has survived the peak default period. But seasoning also affects prepayment (already past the ramp-up) and remaining yield (less premium amortization left). The net effect on value depends on the specific characteristics.
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