A mortgage-backed security is 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.
Mortgage-Backed Security Explained
Mortgage-backed securities, or MBS, are bonds or notes backed by a pool of mortgages on residential or commercial properties. As the mortgage borrowers pay the principal and interest on their loans, the investors in MBS receive payments of interest and principal.