What is a mortgage-backed security (MBS)?

A mortgage-backed security (MBS) is an investment instrument that is secured by mortgages or other forms of real estate debt. It is a security that is created when a lender purchases a pool of mortgages and packages them together as a single financial instrument. This allows lenders to raise money from investors, who can then buy a piece of the package. The cashflows from the mortgages are used to repay the investor. The lender takes the risk of default on the loans, but the investor is exposed to the creditworthiness of the lender and the quality of the pool of mortgages. In Washington, Mortgage-backed securities are regulated by the Financial Industry Regulatory Authority (FINRA) and the Security and Exchange Commission (SEC). These organizations set standards for MBS to ensure that investors are protected from fraud and abuse. MBS can provide investors with more diversification benefits than individual mortgages alone, but they also come with a higher degree of risk. Therefore, it is important to do thorough research before investing in mortgage-backed securities.

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What is a mortgage-backed security (MBS)?

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