DEFINITION of 'Gnomes'
15-year, fixed-rate, pass-through securities offered by the Federal Home Loan Mortgage Corporation, or Freddie Mac's, cash program. The securities offered under this program have a maturity of 15 years. A pass-through security pools debt obligations and passes income obligations from the person or entity that owes the debt, to the shareholders. A mortgage-backed certificate is an example of a pass through.
BREAKING DOWN 'Gnomes'
Under the Freddie Mac cash program, Freddie Mac buys mortgages for cash, then forms a pool of mortgages and sells mortgage participation certificates. These represent undivided interest, or an identical percentage interest or share, in these mortgages. Investors sell their mortgages through Freddie Mac's cash program. The 15-year mortgages sold to Freddie Mac form the pool of mortgages that back the securities referred to as gnomes.