Mortgage-Backed Security (MBS)

AAA

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."

INVESTOPEDIA EXPLAINS '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.

VIDEO

RELATED TERMS
  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. Fannie Mae and Freddie Mac, Boon Or ...
    Insurance

    Fannie Mae and Freddie Mac, Boon Or ...

  2. Profit From Mortgage Debt With MBS
    Bonds & Fixed Income

    Profit From Mortgage Debt With MBS

  3. Understanding Mortgage-Backed Securities
    Home & Auto

    Understanding Mortgage-Backed Securities

  4. How The Sharpe Ratio Can Oversimplify ...
    Active Trading Fundamentals

    How The Sharpe Ratio Can Oversimplify ...

comments powered by Disqus
Hot Definitions
  1. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  2. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  3. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  4. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Budget Deficit

    A status of financial health in which expenditures exceed revenue. The term "budget deficit" is most commonly used to refer ...
Trading Center