Mortgage Backed Security

Market Terms

We don't know everything about the markets.  We're just devoted to learners.  Taken from those smarter than ourselves, here's how we define Mortgage Backed Security.

An investment similar to a bond made up of a bundle of home loans bought from the banks that issued them.  Investors in MBSs receive periodic payments similar to bond coupon payments.  Of note, the MBS is only as safe as the mortgage loans that are backing it up.  The process works as intended when all parties hold up their ends; meaning the banks keep reasonable standards for granting mortgages, the homeowner pays their mortgage on time, and the credit rating agencies that review MBSs are ranking them fairly.  However, a weak link in the chain can compromise the system.  This became very apparent in the subprime mortgage financial disaster of 2007-2008.