Pass-Through Security

Pass-Through Security

What is ‘Pass-Through Security’

A pass-through security is a pool of fixed-income securities backed by a package of assets. A servicing intermediary collects the monthly payments from issuers and, after deducting a fee, remits or passes them through to the holders of the pass-through security. It is also known as a “pass-through certificate” or “pay-through security.”

Explaining ‘Pass-Through Security’

The term pass-through relates to the transaction process itself, whether it involves a mortgage or other loan product. It originates with the debtor payment, which passes through an intermediary before being released to the investor. The most common type of pass-through is a mortgage-backed certificate, in which a homeowner’s payment passes from the original bank through a government agency or investment bank before reaching investors.

Risks Associated with Pass-Through Securities

The risk of default on the debts associated with the securities is an ever-present factor, as failure to pay on the debtor’s part results in lower returns. Should enough debtors default, the securities can essentially lose all value.

Mortgage-Backed Securities

Mortgage-backed securities derive their value from unpaid mortgages, in which the owner of the security receives payments based on a partial claim to the payments being made by the various debtors. These securities are generally self-amortizing. Multiple mortgages are packaged together, forming a pool, spreading the risk across multiple loans.

Further Reading

Prepayment, default, and the valuation of mortgage pass-through securitiesPrepayment, default, and the valuation of mortgage pass-through securities
www.jstor.org [PDF]… Cali- fornia, Berkeley, the London Business School, the London School of Economics, the University … default allows us to value the insurance provided to the pass-through security holder … at the level of the borrower (mortgagor) and that different economic circumstances underlie …

Financial market innovation and security design: An introductionFinancial market innovation and security design: An introduction
www.sciencedirect.com [PDF]… Cali- fornia, Berkeley, the London Business School, the London School of Economics, the University … default allows us to value the insurance provided to the pass-through security holder … at the level of the borrower (mortgagor) and that different economic circumstances underlie …

On the determinants of yield spreads between mortgage pass-through and Treasury securitiesOn the determinants of yield spreads between mortgage pass-through and Treasury securities
link.springer.com [PDF]… Cali- fornia, Berkeley, the London Business School, the London School of Economics, the University … default allows us to value the insurance provided to the pass-through security holder … at the level of the borrower (mortgagor) and that different economic circumstances underlie …

Imperfect competition in bank retail markets, deposit and loan rate dynamics, and incomplete pass throughImperfect competition in bank retail markets, deposit and loan rate dynamics, and incomplete pass through
onlinelibrary.wiley.com [PDF]… Cali- fornia, Berkeley, the London Business School, the London School of Economics, the University … default allows us to value the insurance provided to the pass-through security holder … at the level of the borrower (mortgagor) and that different economic circumstances underlie …

The impact of the GNMA pass-through program on FHA mortgage costsThe impact of the GNMA pass-through program on FHA mortgage costs
www.jstor.org [PDF]… Cali- fornia, Berkeley, the London Business School, the London School of Economics, the University … default allows us to value the insurance provided to the pass-through security holder … at the level of the borrower (mortgagor) and that different economic circumstances underlie …

Exchange rate pass-through into import pricesExchange rate pass-through into import prices
www.mitpressjournals.org [PDF]… Cali- fornia, Berkeley, the London Business School, the London School of Economics, the University … default allows us to value the insurance provided to the pass-through security holder … at the level of the borrower (mortgagor) and that different economic circumstances underlie …

The structured finance market: An investor's perspectiveThe structured finance market: An investor's perspective
www.tandfonline.com [PDF]… Cali- fornia, Berkeley, the London Business School, the London School of Economics, the University … default allows us to value the insurance provided to the pass-through security holder … at the level of the borrower (mortgagor) and that different economic circumstances underlie …

Interest rate pass through and asymmetric adjustment: evidence from the federal funds rate operating target periodInterest rate pass through and asymmetric adjustment: evidence from the federal funds rate operating target period
www.tandfonline.com [PDF]… Cali- fornia, Berkeley, the London Business School, the London School of Economics, the University … default allows us to value the insurance provided to the pass-through security holder … at the level of the borrower (mortgagor) and that different economic circumstances underlie …