Pass-Through Rate

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Stripped MBS

    A trust comprised of mortgage-backed securities which are split ...
  2. Mortgage Participation Certificate

    A type of security that groups together Freddie Mac conventional ...
  3. Z-Bond

    The final tranche in a series of mortgage-backed securities that ...
  4. Asset-Backed Security - ABS

    A financial security backed by a loan, lease or receivables against ...
  5. Fannie Mae - Federal National Mortgage ...

    A government-sponsored enterprise (GSE) that was created in 1938 ...
  6. Freddie Mac - Federal Home Loan ...

    A stockholder-owned, government-sponsored enterprise (GSE) chartered ...
Related Articles
  1. Profit From Mortgage Debt With MBS
    Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

  2. The Bond Market: A Look Back
    Mutual Funds & ETFs

    The Bond Market: A Look Back

  3. 20 Investments You Should Know
    Options & Futures

    20 Investments You Should Know

  4. Don't Be Misled By Investment Advertising
    Home & Auto

    Don't Be Misled By Investment Advertising

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center