Pass-through Mortgage Backed Securities (MBSs)provide the investor with:

Question

Quizplus · Accepted Answer

Pass-through MBSs provide the investor with a prorated share of all monthly principal and interest payments made by the borrower on the underlying pool of mortgages. This means the investor is exposed to prepayment risk from the loans, but they will receive a share of any payments made by borrowers. Option A is incorrect because pass-through MBSs do not reduce prepayment risk, they actually transfer it from the originator to the investor. Option C is incorrect because there is prepayment risk involved. Option D is incorrect because investors in pass-through MBSs receive both principal and interest payments.

Pass-Through Mortgage Backed Securities (MBSs)provide the Investor With