Mortgage Participation Certificate

DEFINITION of 'Mortgage Participation Certificate'

A type of security that groups together Freddie Mac conventional mortgages. These certificates are guaranteed by Freddie Mac and are taxable by federal, state and the local government. These certificates are also referred to as "pass-through" because the interest and principal payments are periodically passed through to investors from debtors after service fee deductions.

BREAKING DOWN 'Mortgage Participation Certificate'

These securities tend to have short maturities. Private lenders group these loans together and sell them to investors. Freddie Mac issues, trades, replaces and collects matured mortgage participation certificates. A Multifamily K certificate is an example of these securities. Multifamily K certificates are structured pass-through securities that are guaranteed by Freddie Mac and have a structured credit enhancement, but are backed by multifamily mortgage loans.