When discussing the MBS market with non-industry professionals, there is one question that arises more than any other: What are mortgage-backed securities? One would think that a casual web search would reveal all the information one would ever need to know about MBS, however, relevant and informative information is actually few and far between. At Market Alert, we pride ourselves on being a leader in the industry and we want to be the resource that experts and laymen alike can trust. Keeping that in mind, let’s take a closer look at the basics of mortgage-backed securities.
A Brief Overview of Mortgage-Backed Securities
In summation, an MBS is an investment representing ownership of an undivided interest of a group of similar mortgages. The principal payment and the interest from each individual mortgage are used to pay the principal and interest on the MBS. MBS free up capital for banks and lenders, allowing them to acquire more business and allowing more individuals to acquire a mortgage. For investors, MBS represent a fairly low-risk investment with a return that is higher in comparison to other low-risk investments.