Mortgage Backed Securities (MBS)
Debt obligations that represent claims to the cash flows in a group (pool) of mortgages (loans on real estate) most commonly on residential property. These investments are created when a mortgage provider sells the residential loans to a federally sponsored credit agency or a private institution that in turn pools the mortgages together and securitizes it. Principal and interest payments made from individual mortgage payments are used to pay investors’ return of principal and interest income on the investment. The security returns the principal to the investor periodically over the term of the security rather than all at once at maturity.