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LSDefine
Simple English definitions for legal terms
mortgage-backed security
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A quick definition of mortgage-backed security:
A mortgage-backed security is like a big pie made up of many smaller pieces of pie. Each small piece is a loan that someone took out to buy a house. When you buy a slice of the big pie, you are really buying a part of all those loans. The people who made the loans get money from you, and you get money back when the loans are paid back. It's a way to invest in lots of loans at once.
A more thorough explanation:
A mortgage-backed security is a type of investment where a person buys a part of a group of mortgage loans. This means that the person is investing in a pool of mortgages instead of just one mortgage.
For example, a bank might have $10 million worth of home mortgages. They can sell this pool of mortgages to a government agency or a securities firm. The agency or firm then creates a new investment called a mortgage-backed security. People can buy a piece of this investment, which means they own a small part of the pool of mortgages.
When people pay their mortgages, the money goes to the agency or firm that created the mortgage-backed security. The agency or firm then pays the people who invested in the mortgage-backed security. This means that people who invest in mortgage-backed securities can earn money from the interest that people pay on their mortgages.
Overall, mortgage-backed securities are a way for people to invest in a group of mortgages instead of just one mortgage. This can be a good investment for people who want to earn money from the interest that people pay on their mortgages.