What is FN 4.0?
The FN 4.0 is the Fannie Mae 4.00% "pass-through" mortgage-backed security (MBS) coupon. There are also Fannie Mae, Freddie Mac, and Ginnie Mae MBS with coupons with rates ranging from 3.50% to 16.5%. These MBS coupons are traded in the open market and are the foundation for the generation of mortgage rates.
The MBS coupon rate is determined by the average note rate of the pools of loans that make up the "pass-through" mortgage investment. For example, a Fannie 4.0 MBS is mostly comprised of mortgages with note rates between 4.00% and 4.625%.
The term " pass-through" describes the source of cash flows that make up an MBS investment. In the case of MBS coupons, the investors cash flows are generated from the principal and interest of the loans that make up each MBS coupon. Those cash flows are then "passed-through" to the end MBS investor.