Mortgage-Backed Security (MBS) (MBS)

​A mortgage‐backed security (MBS) is an asset‐backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property. First, mortgage loans are purchased from banks, mortgage companies, and other originators. Then, these loans are assembled into pools. This is done by government agencies, government‐sponsored enterprises, and private entities, which may offer features to mitigate the risk of default associated with these mortgages. Mortgage-backed securities represent claims on the principal and payments on the loans in the pool, through a process known as securitization.

A Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.