Mortgage-backed security (MBS)
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
A security collateralized by a pool of residential or commercial mortgages.
Mortgage-backed security (MBS) in plain English
When you take out a home loan, you promise to make monthly payments for years. A mortgage-backed security bundles thousands of those home loans together and sells slices of the combined monthly payments to investors, so buying one means you collect a piece of many homeowners' payments. Think of it as a giant shared jar that thousands of people drip payments into each month, and you own the right to scoop out a portion. It lets banks turn slow, decades-long loans into cash today, though it can go badly wrong if lots of those homeowners stop paying at once, as happened in the 2008 crisis.
Also called: MBS
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