What is Mortgage-Backed Security (MBS)?
Mortgage-Backed Securities represent debt obligations secured by a mortgage loan. Once mortgage loans (residential or commercial) have been extended, they can be purchased from banks and other originators and placed into a pool by governmental or private entities. These entities then issue securities which give holders a claim to the principal and interest payments made by borrowers. Unlike bonds, MBS return some principal with each interest payment, which means that their maturity value drops over time, unlike bonds.