What is the definition of a Mortgage Backed Security (MBS)?

A mortgage-backed security or MBS is an asset that is secured by a group of mortgages. This process is made possible through securitization. Mortgage-backed securities are split into tranches, all with different interest rates and risk.

Mortgage-backed securities allow investors from all over the world to get exposure to a specific home mortgage market, with the largest being the US.

Investors effectively loan money to homeowners and get repaid through the mortgage payments of the homeowners. The risk to investors is that the homeowner does not meet the mortgage payments, defaults and therefore the asset the investor owns is worthless.