Residential MortgagePass-Through Securities
A mortgage pass-through security, or simply a mortgage pass-through, is backed by a pool of mortgages for which the monthly payments are the sole source of cash flow for the security. The security is called a pass-through because the monthly payments generated from the underlying pool of mortgages are passed from the borrowers (mortgagors) through the issuer (servicer) to the investors of the security.
This chapter will discuss the evolution of the various types of residential mortgage pass-throughs. During the 1970s and the 1980s, the RMBS market evolved to create four major types of pass-throughs to facilitate mortgage financing for homebuyers. They are: government-guaranteed mortgage pass-throughs (Ginnie Maes), GSE-guaranteed mortgage pass-throughs (Fannie Maes and Freddie Macs), private-label pass-throughs, and subprime mortgage-backed securities. They represented the four pillars of the U.S. housing finance system. Each pillar is distinctive in its unique way of facilitating finance for a specific type of homebuyer. Combined, the four pillars provide housing finance for Americans from all walks of life. This chapter will also introduce the concept and terminology of mortgage pass-throughs and their trading and relative value.
Ginnie Mae Mortgage Pass-Throughs
As briefly mentioned in Chapter 1, mortgage pass-throughs were first issued by mortgage bankers in 1970. They issued pass-throughs backed ...