What is the meaning of Pass Through?

Pass Through is the term used to represent a generic class of securitized mortgage notes. Typically, these mortgage backed securities are issued by agencies of the United States, such as FNMA or FHLMC. The underlying collateral is serviced by banks or mortgage companies. The revenue generated by the servicing is considered fee income. The principal and interest payments go to the investors. Two attractive features of these instruments is that the securitization process lowers the regulatory capital requirements for the originating then holding investor. Secondly, the securitization tends to improve the liquidity of the asset.