ADM 3351 Lecture Notes - Lecture 11: Prepayment Of Loan, Municipal Bond, The Seller
5 Dec 2017
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Document Summary
The pass-through mortgage securities are the subject of this chapter. A mortgage pass-through security, or simply a pass-through, is created when one or more mortgage holders form a collection (pool) of mortgages and sell shares or participation certificates in the pool. From the pass-through, two further derivative mortgage-backed securities are created: collateralized mortgage obligations and stripped mortgage-backed securities, which are discussed in chapter 12. The cash flow of a mortgage pass-through security depends on the cash flow of the underlying mortgages. Payments are made to security holders each month. The monthly cash flow for a pass-through is less than the monthly cash flow of the underlying mortgages by an amount equal to servicing and other fees. The other fees are those charged by the issuer or guarantor of the pass-through for guaranteeing the issue. The coupon rate on a pass-through is called the pass-through coupon rate.
