Mortgage Backed Securities

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Definition: Mortgage Backed Securities

A mortgage backed security is a security backed by an asset that shows a claim mortgage loans cash flows through a process called securitization.

The process of securitization works in the following manner:

  1. The agency who wants to create mortgage back securities purchases mortgage loans from banks and other sources.
  2. Then these loans are grouped into small pools.
  3. Then the purchasing agency securitizes these pools the issue of the mortgage backed securities.

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