Non-agency MBS

Definition

Non-agency MBS in plain English

MBS stands for "mortgage-backed security" — a bond whose payments come from a big pool of home-loan borrowers making their monthly payments. "Non-agency" means it was NOT built or guaranteed by a government-backed company (like Fannie Mae), so if borrowers stop paying, no government safety net steps in. To make investors comfortable anyway, these deals build in their own protections — "credit enhancement" — such as junior slices that absorb losses first (subordination), extra collateral (overcollateralization), or leftover interest that plugs holes (excess spread). Think of it as a private lemonade-stand co-op that, lacking a rich uncle's guarantee, keeps its own emergency cash jar so investors still get paid when a few customers skip out.

Learn these first

• Revolving period
• Securitization

Practice Non-agency MBS

Which explanation best identifies the additional spread components in the non-agency bond?

Related Asset-Backed Securities terms

• Absolute Prepayment Speed (ABS)
• Advance rate
• Appraisal Reduction Amount (ARA)
• B-piece
• Basis risk
• Commercial Mortgage-Backed Security (CMBS)
• Conduit CMBS
• Controlled amortization
• Controlling class
• Cross-collateralization