What term describes a pool of mortgages packaged to provide a steady stream of payments to investors?

What term describes a pool of mortgages packaged to provide a steady stream of payments to investors?

• A. Asset-Backed Securities
• B. Mortgage-Backed Securities
• C. Commercial Paper
• D. Collateralized Debt Obligations

Answer: (B)

Think of a pool of mortgage loans that are bundled together and sold to investors so that the borrowers’ regular payments (both interest and principal) pass through to those investors. That describes Mortgage-Backed Securities. The underlying assets are mortgages, and the security is designed to provide a steady stream of payments to holders. This is a specific form of asset-backed security, focused on mortgages; the broader category can cover other types of assets too. In contrast, commercial paper is a short-term debt instrument not tied to mortgage payments, and collateralized debt obligations are more complex structures built from a pool of assets (often including MBS) and divided into tranches with different risk levels.

Think of a pool of mortgage loans that are bundled together and sold to investors so that the borrowers’ regular payments (both interest and principal) pass through to those investors. That describes Mortgage-Backed Securities. The underlying assets are mortgages, and the security is designed to provide a steady stream of payments to holders. This is a specific form of asset-backed security, focused on mortgages; the broader category can cover other types of assets too. In contrast, commercial paper is a short-term debt instrument not tied to mortgage payments, and collateralized debt obligations are more complex structures built from a pool of assets (often including MBS) and divided into tranches with different risk levels.