Mortgage participation certificate,

Definition of Mortgage participation certificate:

1. Mortgage participation certificates in one form or another have been an essential part of Freddie Mac’s operation since its founding by Congress in 1970. The original goal of Freddie Mac was to increase liquidity for thrift banks, which at the time issued most mortgages. Freddie Mac bought mortgages from the thrifts, providing the banks with cash to lend out as new mortgages, then packaged and resold them on the secondary market.

2. A mortgage participation certificate is a type of security that groups together mortgages held by the Federal Home Loan Mortgage Corporation (Freddie Mac), a government-sponsored enterprise. The certificates are guaranteed by Freddie Mac but not the federal government itself. They are taxable by federal, state and the local governments. Mortgage participation certificates, which Freddie Mac calls PCs, are also referred to as “pass-through securities” because the interest and principal payments are periodically passed through to investors from debtors after service fee deductions.

3. A security that indicates partial ownership within a pool of other partial owners of mortgages, which are owned - both principal and interest - by a federally insured mortgage-holder such as Freddie Mac. Also called pass-through security.