What Is a Mortgage-Backed Security (MBS)?

An MBS is a type of security that is guaranteed by a mortgage or a collection of mortgages, and is issued by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac.

Lenders first identify and bundle a group of mortgage loans issued by banks, and then propose this bundle of mortgages as an MBS to a government-sponsored enterprise that has the authority to issue and guarantee MBS. Such government-sponsored enterprises include Ginnie Mae, Fannie Mae, and Freddie Mac. These entities may issue and guarantee the MBS.

Tellus TIP:

MBS can have multiple investors. Depending on the minimum investment required for the MBS, multiple investors could each invest in a single MBS product through different issuers.