In finance, a mortgage-backed security (MBS) is an asset-backed security whose cash flows are backed by the principal and interest payments of a set of mortgage loans. Payments are typically made monthly over the lifetime of the underlying loans
A broad term which encompasses securities carved out of receivables out of mortgage funding MBS are further classified into residential mortgage-backed securities and commercial mortgage-backed securities The generic term also includes private label and agency securities, pass-throughs, or derivatives such as Collateralized Mortgage Obligations It can refer to the Over-the-Counter options on mortgage backed securities as well These mortgage backed securities are viewed as either plain vanilla or exotic
Similar to bonds, these securities are backed by a share in a pool of home mortgages insured under the National Housing Act The securities pay interest and a part of the principal each month and, if home owners prepay their mortgages, may pay out additional amounts of principal before normal maturity They trade in the bond market at prices reflecting current interest rates
a security created when a group of mortgages are gathered together and bonds are sold to other institutions or the public; investors receive a portion of the interest payments on the mortgages as well as the principal payments; usually guaranteed by the government