Why does the pass-through rate differ from the average note rate paid by the borrowers in the loan pool for this security?
What will be an ideal response?
Not all of the mortgages that are included in the loan pool that are securitized need to have the same note rate and the same maturity. Consequently, when describing a pass-through security, the weighted-average coupon is determined. A weighted-average coupon rate (WAC) is found by weighting the note rate of each mortgage loan in the pool by the amount of the mortgage outstanding.
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