What is a mortgage-backed security (MBS)?

A mortgage-backed security (MBS) is a financial instrument that is secured by pools of mortgages. These mortgages are typically from homeowners who have taken out loans to purchase a home in California. The MBS acts as a kind of bond for the lenders who have made the loans, as it is backed by the mortgages themselves. This means that, if the borrowers fail to make payments on their loans, the lenders will have a legal claim to the mortgages and can collect the money owed to them. MBSs are often issued in tranches, or series, so that the risk of default on the loan is spread across multiple entities. Because of this, investors who purchase MBSs can receive a regular income stream from the interest payments of the persons taking out the loans. They can also expect to receive a portion of the profits that are made when the mortgage loan is paid off. MBSs are used as an investment vehicle in California because they provide both stability and potential returns. For this reason, they are popular investments among institutional and individual investors. They can also be traded on the secondary market, allowing investors to buy and sell them much easier than they would be able to with a typical mortgage loan.

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What is a mortgage-backed security (MBS)?

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