Mortgage- Backed Security (“MBS”)

A Mortgage-Backed Security is a security based upon a pool of underlying mortgage loans. For instance, 500 thirty-year fixed rate mortgage loans of $200 000 each can be combined into a $100 million mortgage-backed security issue. The underlying loans are generally insured against non-payment. Given that each loan in the underlying pool that formed the mortgage-backed security is insured, the primary risk for the mortgage-backed security holder is that of prepayment. The market for mortgage-backed security trading is known as the secondary mortgage market.

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