Pass-Through Rate


DEFINITION of 'Pass-Through Rate'

The rate on a securitized asset pool - such as a mortgage-backed security (MBS) - that is "passed-through" to investors once management fees and guarantee fees have been paid to the securitizing corporation. The pass-through rate (also known as the coupon rate for the MBS) will be lower than the interest rate on the individual securities within the offering.

BREAKING DOWN 'Pass-Through Rate'

For example, suppose that an agency takes two million dollars' worth of mortgage loans, each of which pays 6% interest, and turns them into a 5.5% mortgage-backed security. The 5.5% reflects the pass-through rate, and the agency takes the remaining 0.5% as a cut of the proceeds.

The largest issuers of securitized assets are the Sallie Mae, Fannie Mae and Freddie Mac corporations. While these companies are for-profit business, their guarantees are backed by the U.S. government, giving them high credit ratings.

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    A stockholder-owned, government-sponsored enterprise (GSE) chartered ...
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