Mortgage-Backed Securities (MBS) are created when financial institutions pool together a large number of individual residential or commercial mortgages and sell the rights to the cash flows from those loans. Agency MBS are backed by government-sponsored enterprises, which provide a guarantee against borrower default, making them highly secure. Non-Agency MBS lack this government backing and rely entirely on the creditworthiness of the underlying borrowers and the structure of the security itself.
As homeowners make their monthly mortgage payments, those funds are collected and distributed to the MBS investors. This structure transforms illiquid individual mortgages into liquid, tradable securities. The MBS market is vast and serves as a primary mechanism for funding real estate lending globally. It allows institutions to gain broad exposure to the housing market without needing to originate or service individual loans.
Clients use these securities to generate regular income and diversify their fixed-income holdings. Agency MBS are particularly valued for their high liquidity and strong credit profile, while Non-Agency variations offer higher potential yields to compensate for the increased credit risk.
As homeowners make their monthly mortgage payments, those funds are collected and distributed to the MBS investors. This structure transforms illiquid individual mortgages into liquid, tradable securities. The MBS market is vast and serves as a primary mechanism for funding real estate lending globally. It allows institutions to gain broad exposure to the housing market without needing to originate or service individual loans.
Clients use these securities to generate regular income and diversify their fixed-income holdings. Agency MBS are particularly valued for their high liquidity and strong credit profile, while Non-Agency variations offer higher potential yields to compensate for the increased credit risk.