{"id":8822,"date":"2024-12-16T10:40:15","date_gmt":"2024-12-16T10:40:15","guid":{"rendered":"https:\/\/marc.deschenaux.com\/?p=8822"},"modified":"2025-01-14T17:54:02","modified_gmt":"2025-01-14T17:54:02","slug":"definition-of-a-passthrough-security","status":"publish","type":"post","link":"https:\/\/marc.deschenaux.com\/fr\/articles\/definition-of-a-passthrough-security\/","title":{"rendered":"Definition of a Passthrough Security"},"content":{"rendered":"
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This article was written for Investopedia By TROY SEGAL<\/strong><\/a> updated May 29, 2020 and reviewed by GORDON SCOTT<\/strong><\/a>. I reproduce it here because it is generally excellent but modified because it contains several errors.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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What Is a Pass-Through Security?<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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UN pass-through security<\/strong> is a security transferring fix or variable income from one or more income producing asset\/s which also back said pass-through security.<\/p>

A servicing intermediary collects the monthly payments from issuers and, after deducting a fee, remits or passes them through to the holder of the pass-through security (that is, investors). A pass-through security is also known as a “pay-through security” or a “pass-through certificate<\/a>“\u2014though technically the certificate is the evidence of interest or participation in a pool of assets that signifies the transfer of payments to investors; it’s not the security itself.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Pass-Through Security Explained<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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A pass-through security is a derivative based on certain debt or royalties receivables that provides the investor a right to a portion of those incomes. Often, the royalties or debt receivables are from underlying assets, which can include things such as movies, music, patents, mortgages on homes or loans on vehicles.<\/p>

Generally, each security represents a large number of income streams.<\/p>

The term “pass-through” relates to the transaction process itself, whether it involves a royalty, a mortgage or other loan product. It originates with the debtor’s or issuer’s payment, which passes through an intermediary<\/a> before being released to the investor.<\/p>

Payments are made to investors on a periodic basis, corresponding with the standard payment schedules for royalties or debt repayment. The payments may include accrued interest<\/a> on the unpaid principal or not, amortization on the principal<\/a> itself or not, or simply royalties streams or not.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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Risks of Pass-Through Securities<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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The risk of default on the debts associated with the securities is an ever-present factor, as failure to pay on the debtor\u2019s part results in lower returns. Should enough debtors default, the securities can essentially lose all value.<\/p>

Another risk is tied directly to current interest rates. If interest rates fall, there is a higher likelihood that current debts may be refinanced to take advantage of the low-interest rates. This results in smaller interest payments, which mean lower returns for the investors of pass-through securities.<\/p>

Prepayment on the part of the debtor can also affect return. Should a large number of debtors pay more than minimum payments, the amount of interest accrued on the debt is lower\u2014and of course, it becomes non-existent if the debtor entirely repays the loan ahead of schedule. Ultimately, these prepayments result in lower returns for securities investors. In some instances, loans will have prepayment penalties<\/a> that may offset some of the interest-based losses a prepayment will cause.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t

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An Example of Pass-Through Securities<\/h3>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t
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The most common type of pass-through is a mortgage-backed certificate or a a mortgage-backed security<\/a> (MBS), in which a homeowner’s payment passes from the original bank through a government agency or investment bank before reaching investors. These types of pass-throughs 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. Multiple mortgages are packaged together, forming a pool, which thus spreads the risk across multiple loans. These securities are generally self-amortizing<\/a>, meaning the entire mortgage principal is paid off in a specified period of time with regular interest and principal payments.<\/p>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>","protected":false},"excerpt":{"rendered":"

This article was written for Investopedia By TROY SEGAL updated May 29, 2020 and reviewed by GORDON SCOTT. I reproduce it here because it is generally excellent but modified because it contains several errors. What Is a Pass-Through Security? A pass-through security is a security transferring fix or variable income from one or more income … Lire la suite<\/a><\/p>","protected":false},"author":1,"featured_media":5813,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"wds_primary_category":3,"footnotes":""},"categories":[3,49,57],"tags":[],"class_list":["post-8822","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles","category-beginners","category-ipo"],"_links":{"self":[{"href":"https:\/\/marc.deschenaux.com\/fr\/wp-json\/wp\/v2\/posts\/8822","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/marc.deschenaux.com\/fr\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/marc.deschenaux.com\/fr\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/marc.deschenaux.com\/fr\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/marc.deschenaux.com\/fr\/wp-json\/wp\/v2\/comments?post=8822"}],"version-history":[{"count":0,"href":"https:\/\/marc.deschenaux.com\/fr\/wp-json\/wp\/v2\/posts\/8822\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/marc.deschenaux.com\/fr\/wp-json\/wp\/v2\/media\/5813"}],"wp:attachment":[{"href":"https:\/\/marc.deschenaux.com\/fr\/wp-json\/wp\/v2\/media?parent=8822"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/marc.deschenaux.com\/fr\/wp-json\/wp\/v2\/categories?post=8822"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/marc.deschenaux.com\/fr\/wp-json\/wp\/v2\/tags?post=8822"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}