Series 82: 3.3.5.4. Mortgage-Backed Securities

3.3.5.4. Mortgage-Backed Securities

A mortgage-backed security (MBS) is a bond whose payments to bondholders are funded by the mortgage payments from a pool of mortgages that are "bundled" together to create the MBS. Like a mortgage lender, an investor in an MBS receives monthly principal and interest payments. That is, an investor who purchases a $1,000 mortgage-backed security will receive monthly interest payments that are based on the interest and principal payments of the underlying mortgages. Because interest and principal payments from the mortgages are “passed through” to the MBS investor, MBSs are considered pass-through securities.

Note: MBSs are not