2.12.1 Mortgage-Backed Securities
A mortgage-backed security (MBS) is a bond backed by the mortgage payments of a pool of mortgages. From an investor’s perspective, an MBS is similar to any other kind of bond, except instead of receiving a fixed coupon payment, the investor receives monthly interest payments that vary depending on how quickly homeowners pay off their mortgages. That is, an investor who purchases a $1,000 mortgage-backed security will receive monthly interest payments that are based on the interest and principal payments of the underlying mortgages. In fact, th