A mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages. The mortgages are aggregated and sold to a group of individuals that securitizes, or packages, the loans together into a single security that can be bought and sold on the secondary market. An MBS is essentially a bundle of home loans and other real estate debt bought from issuing banks and then sold to investors. The investor who buys an MBS is essentially lending money to home buyers. MBSs are variations of asset-backed securities that are formed by pooling together mortgages exclusively.

Mortgage-backed securities can be bought and sold through a broker, and the minimum investment varies between issuers. Most mortgage-backed securities are issued by government-sponsored enterprises such as Fannie Mae, Freddie Mac, and Ginnie Mae, which buy mortgage loans from lenders and structure them into a mortgage-backed security.

Mortgage-backed securities can be divided into different types, including residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS) . RMBSs are secured by single-family, one- to four-unit real estate, while CMBSs are secured by commercial and multi-family properties, such as apartment buildings, retail or office properties, hotels, schools, industrial properties, and other commercial sites.

Mortgage-backed securities have several benefits, including transforming relatively illiquid, individual financial assets into liquid and tradable capital market instruments and allowing mortgage originators to replenish their funds, which can then be used for additional origination activities. However, as became obvious in the subprime mortgage meltdown of 2007-2008, a mortgage-backed security is only as sound as the mortgages that back it up.