Answer: lower than the mortgage rate on the underlying pool.

## Explanation The pass-through rate of a mortgage pass-through security is **lower than the mortgage rate on the underlying pool**. This is because: 1. **Servicing Fees**: The mortgage pass-through security issuer (such as Ginnie Mae, Fannie Mae, or Freddie Mac) charges servicing fees for administering the mortgage pool. These fees are deducted from the interest payments made by borrowers. 2. **Guarantee Fees**: The issuer also charges guarantee fees to cover credit risk and administrative costs. 3. **Net Interest Rate**: The pass-through rate represents the net interest rate that investors receive after deducting these fees from the gross mortgage rate. For example, if the underlying mortgages have an average interest rate of 6.5%, the pass-through rate might be 6.0% or lower, with the difference representing servicing and guarantee fees. This structure ensures that investors receive a predictable cash flow while compensating the issuer for administrative services and credit risk protection.

Author: LeetQuiz .