Buying a home is usually the biggest individual investment people make in their lifetime and more often than not, a mortgage is involved. With such large sums of money involved in the mortgage market, financial firms profit by using a type financial instrument called mortgage-backed securities, or MBS. How are mortgage-backed securities created and what purpose do they serve? Salman Khan of the Khan Academy gives a basic explanation of MBS.
From this video you’ll understand:
- How investment banks create mortgage-backed securities
- The rational behind mortgage-backed securities
- How investors in mortgage-backed securities are paid