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Simple English definitions for legal terms
pass-through security
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A quick definition of pass-through security:
A pass-through security is a type of investment that represents a share in a pool of assets, such as mortgages or loans. When people make payments on these assets, the money is passed through to the investors who own the pass-through security. This type of investment can be bought and sold on the stock market, and its value depends on the performance of the underlying assets.
A more thorough explanation:
A pass-through security is a type of security that represents a share in a pool of assets, such as mortgages or loans. The cash flows generated by these assets are passed through to the holders of the security, who receive a portion of the interest and principal payments.
For example, a mortgage-backed security is a type of pass-through security that represents a share in a pool of mortgages. The interest and principal payments made by the homeowners are passed through to the holders of the security, who receive a portion of these payments based on their ownership share.
Pass-through securities are popular with investors because they offer a steady stream of income and are often backed by collateral, which reduces the risk of default. However, they can also be complex and difficult to value, especially in times of economic uncertainty.