Pass-Through Rate

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.

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.


Investment dictionary. . 2012.

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