Mortgage Participation Certificate (MPC)
A mortgage participation certificate (MPC) is a mechanically and financially packaged security that represents a defined portion of a pool of mortgages. MPCs are not mortgage-backed securities (MBS) as they are issued through private placement and there are no publicly traded MPCs available.
MPCs are issued by real estate investment trusts (REITs), mortgage companies, commercial banks, and other institutions that have already pooled mortgages of a particular type. These institutions then issue certificates that represent fractional ownership of the mortgage pool.
MPC holders are essentially purchasing the right to receive a portion of the interest and principal payments of the mortgages in the pool. The return on the MPC is based on the performance of the loans in the pool and the pass-through rate, which is the percentage of the interest and principal payments made to the MPC.
In general, MPCs are structured to provide investors with a high yield and income. The mortgage pool backing them consists of carefully selected and different types of mortgages such as commercial, residential, and self-financed loans. The MPCs also provide a relatively secure investment, as the mortgages are pre-screened for credit worthiness, loan sizes, loan-to-value ratio, and other features. However, the performance of the mortgage pool does still depend on several factors and there is a certain amount of risk involved in MPC investment.
MPCs can typically be purchased from the issuing institution with a minimum investment of $10,000. Investors receive semi-annual payments comprised of interest payments and principal repayments.
MPC investments are used primarily by conservative investors looking for relatively secure investment vehicles with good returns and a steady stream of income. MPCs are also attractive to investors with moderate to large sums of capital to invest, as it gives them access to a larger mortgage pool and increases their potential return.