A mortgage-backed security (MBS) is a type of investment that is backed by a pool of mortgages. An MBS is created when a lender, such as a bank or mortgage company, bundles together a group of mortgages and sells them to investors. The income from the mortgages is used to pay interest and principal to the investors who hold the MBS.
MBS are often seen as a relatively safe investment, as they are backed by real estate and the payments from the underlying mortgages. They are also seen as a good way for investors to earn a steady income, as the payments from the mortgages are typically reliable and predictable. However, the value of an MBS can be affected by changes in interest rates and the creditworthiness of the borrowers who hold the underlying mortgages.
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