Mortgage-Backed Security (MBS)


DEFINITION of 'Mortgage-Backed Security (MBS)'

A type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by a accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from a regulated and authorized financial institution.

Also known as a "mortgage-related security" or a "mortgage pass through."


Loading the player...

BREAKING DOWN 'Mortgage-Backed Security (MBS)'

When you invest in a mortgage-backed security you are essentially lending money to a home buyer or business. An MBS is a way for a smaller regional bank to lend mortgages to its customers without having to worry about whether the customers have the assets to cover the loan. Instead, the bank acts as a middleman between the home buyer and the investment markets.

This type of security is also commonly used to redirect the interest and principal payments from the pool of mortgages to shareholders. These payments can be further broken down into different classes of securities, depending on the riskiness of different mortgages as they are classified under the MBS.

  1. Collateralized Mortgage Obligation ...

    A type of mortgage-backed security in which principal repayments ...
  2. Coupon Stripping

    The separation of a bond's periodic interest payments from its ...
  3. 48-Hour Rule

    A requirement that all pooled information regarding to-be-announced ...
  4. Agency MBS Purchase

    The purchase of mortgage-backed securities issued by government-sponsored ...
  5. Single Monthly Mortality - SMM

    In mortgage-backed securities (MBSs), this is the percentage ...
  6. Participation Mortgage

    A participation mortgage is a type of mortgage that allows the ...
Related Articles
  1. Mutual Funds & ETFs

    3 Vanguard Funds with the Lowest Fees

    Learn about the top three Vanguard funds that have the lowest expense ratios and follow different investment objectives by investing in equities and bonds.
  2. Mutual Funds & ETFs

    Investing and Analysing the Vanguard REIT ETF

    Learn about the Vanguard REIT ETF and how it provides an easy and inexpensive way to diversify portfolios into the real estate sector.
  3. Stock Analysis

    6 REITs That Pay Dividends Monthly

    Learn about six real estate investment trusts that pay monthly dividends and invest in a variety of properties and mortgage-backed securities.
  4. Active Trading Fundamentals

    This Is How 3 Investors Made a Billion Dollars

    Read about three major hedge fund managers who are worth at least $1 billion and who made large amounts of money on a single trade idea.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Total USD Bond Market

    Learn about the iShares Core Total USD Bond Market ETF and how it contains holdings that have noninvestment grade ratings, unlike many other bond funds.
  6. Mutual Funds & ETFs

    Top 3 Mortgage Backed Securities (MBS) ETFs

    Discover some of the best opportunities for investors seeking exposure to mortgage-backed securities through utilizing exchange-traded funds.
  7. Insurance

    Fannie Mae and Freddie Mac, Boon Or Boom?

    These two companies are crucial to the mortgage market, but are they ticking timebombs?
  8. Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

    Mortgage-backed securities can offer monthly income, a fixed interest rate and even government backing.
  9. Home & Auto

    Understanding Mortgage-Backed Securities

    Find out the meaning of this popular asset-backed security and its benefits for banks and investors.
  10. Active Trading Fundamentals

    How The Sharpe Ratio Can Oversimplify Risk

    When it comes to hedge funds, this measure is not reliable on its own.
  1. Can mutual funds invest in REITs?

    Mutual funds invest in stocks and fixed-income securities, as well as various real estate investment trusts (REITs) formed ... Read Full Answer >>
  2. What dividend yield is typical for the real estate sector?

    Companies that operate in the real estate sector own and collect income from properties that include land, buildings, minerals ... Read Full Answer >>
  3. What is the average debt/equity ratio of real estate companies?

    The real estate sector comprises different groups of companies that own, develop and operate properties, such as residential ... Read Full Answer >>
  4. Which securities are considered investment grade?

    In finance, government and private fixed income securities, such as bonds and notes, are considered investment grade if they ... Read Full Answer >>
  5. What is the difference between an Equity REIT and a Mortgage REIT?

    There are several types of real estate investments trusts (REITS) that investors can purchase, including equity REITS and ... Read Full Answer >>
  6. What's the difference between a collateralized mortgage obligation (CMO) and a mortgage-backed ...

    A mortgage-backed security, or MBS, and a collateralized mortgage obligation, or CMO, are different types of asset-backed ... Read Full Answer >>
  7. What were the objectives of the Glass-Steagall Act?

    The objectives of the Glass-Steagall Act were “to provide for the safer and more effective use of the assets of banks, to ... Read Full Answer >>
  8. How does securitization increase liquidity?

    Securitization involves taking an illiquid asset (or group of assets) and consolidating with other assets in an effort to ... Read Full Answer >>
  9. Why do MBS (mortgage-backed securities) still exist if they created so much trouble ...

    Despite their infamous reputation and presumed involvement in the financial crisis of 2007-2008, there are several different ... Read Full Answer >>
  10. What is the difference between a collateralized debt obligation (CDO) and an asset ...

    An asset-backed security (ABS) is a security created by pooling non-mortgage assets that is then resold to investors. A collateralized ... Read Full Answer >>
  11. How did the financial crisis affect the banking sector?

    Over the short term, the financial crisis affected the banking sector by causing banks to lose money on mortgage defaults, ... Read Full Answer >>
  12. Why do bankers incur risk when underwriting?

    Investment bankers incur risk when underwriting because the future cannot be known with certainty. Good investment banks ... Read Full Answer >>
  13. What does FNMA stand for?

    FNMA is the acronym and the stock market symbol for the Federal National Mortgage Association, commonly called “Fannie Mae.” ... Read Full Answer >>
  14. Who are the key players in the bond market?

    The bond market can essentially be broken down into three main groups: issuers, underwriters and purchasers. The issuers ... Read Full Answer >>
  15. What is a tranche?

    "Tranche" is actually a French word meaning "slice" or "portion". In the world of investing, it is used to describe a security ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  2. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  3. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  4. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  5. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  6. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
Trading Center