Mortgage-Backed Security

A mortgage-backed security (MBS) is a security for which mortgage debt is used as the underlying asset. Mortgage-backed securities enable investors to access secured debt markets.

Typically, mortgage-backed securities are based on a large pool made up of hundreds, thousands or even millions of mortgages.

Mortgage-backed securities may be issued by banks or government agencies (such as Freddie Mac, Ginnie Mae or Fannie Mae in the United States).

The issuer of an MBS manages the collection of mortgage payments from mortgagors and distributes interest to holders of its mortgage-backed securities in relation to their MBS investments.

One of the most common forms of mortgage-backed securities is the residential mortgage-backed security (RMBS), which uses mortgages on residential real estate as its underlying asset.

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Editor Daniel Dreier
Daniel Dreier is editor and personal finance expert at moneyland.ch.