Introduction to Mortgage-backed Securities - Part 1 of 3
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Mortgage-backed securities (MBS) are debt obligations that represent claims to the payments or cash flows from pools of mortgage loans (most commonly on residential property). Governmental, quasi-governmental, or private entity purchase the mortgage loans from banks, mortgage companies, and other originators and then assembled into pools. The entity then issues securities based on these pools that represent claims on the principal and interest payments/cash flows made by borrowers on the loans in the pool. This process is known as securitization.