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Chap11Notes - Mortgage Pass-Through Security A Mortgage...

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1 Mortgage Pass-Through Security A Mortgage Pass-Through security, or Mortgage Backed Security (MBS), is created when one or more mortgage holders form a pool ( a portfolio) of mortgages and sell shares or participation certificates in that pool. MBS represents a claim on a pool (or portfolio) of mortgage loans. The cash flow to a MBS holder is equal to the total of all principal and interest payments and any principle prepayment made by the mortgages in the pool, less any servicing fee. Mortgage Pass-Through Security Agency Pass-Throughs The three federally related or sponsored agencies; Fannie Mae, Freddie Mac, and Ginnie Mae are the major issuers of Agency Pass- through Securities. Ginnie Mae pass-throughs or MBS are guaranteed by the full faith and credit of the US Government and are viewed as substitutes for Treasury securities. Freddie Mac pass-throughs called participation certificates, and Fannie Mae’s mortgage-backed securities (MBS), carry a full guarantee of interest and principal from Freddie Mac or Fannie Mae (but not from the U.S. Government).
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