mortgage-backed security (MBS) or mortgage-backed obligation (MBO)
An investment instrument that represents an undivided ownership interest in a group of mortgages.
A security or similar form of obligation that is backed by a pool of loans secured by mortgages.
The security granted to the investor may provide that the loan is repaid by principal payments received from the underlying mortgages – 'pass-through' securities, i.e. the security or obligation represents an undivided interest in the loans secured by the mortgages. Alternatively, the 'issuer'
of the security may undertake to make payments to the investor without direct regard to the cash flow received from the borrowers – 'non-pass-through' securities. Alternatively, the security may be a 'modified-pass-through' so that the holder of the security is guaranteed monthly payments of interest, regardless of whether the payments of interest and principal are adequate to meet such payments. Pass-through, unlike non-pass-through, securities are not retained on the
balance sheet of the originator or issuer of the securities. Non-pass-through securities normally take the form of bonds, called 'mortgage-backed bonds'.
M.W. Dennis & M.J. Robertson. Residential Mortgage Lending (4th ed. 1995), Ch. 8 'Mortgage-Backed Securities'.
A.S. Davidson and M.D. Herskovitz. Mortgage-Backed Securities (1993).
R.L. Kuhn. Mortgage and Asset Securitization (1990).
F.J. Fabozzi and F. Modigliani. Mortgage and Mortgaged-Backed Securities (1992).
F.J. Fabozzi. The Handbook of Mortgage Backed Securities (1995).
E. Ferran. Mortgage Securitisation—Legal Aspects (1992).