Mortgage Backed Securities & its Importance

What are Mortgage-Backed Securities?

Mortgage-Backed Security (MBS) is a specialised product of Asset-Backed Securities. MBS works through pooling different mortgages and selling them in a packaged form. Institutional Investors make payments to the Bank, and the Bank issues mortgages to the customers. Investors who buy MBS ultimately lend the money to the mortgage owners.

Why is it essential to know MBS?

Like Credit Default Swaps and collateralised mortgage obligation, Mortgage-Backed Securities was the main product involved in the Financial Crisis of 2008-09.