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Mortgage-backed securities (MBS)
Since 1970· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
Mortgage-backed securities are bonds made from pools of home loans; homeowners' monthly payments pass through to the bondholders.
See it on the Money & Finance map →How it works
Ginnie Mae issued the first modern pass-through in 1970; Freddie Mac followed in 1971 and Fannie Mae in 1981. 'Agency' MBS carry a guarantee from Ginnie (backed by the US) or Fannie and Freddie (under government conservatorship since 2008); the agency market is about $9 trillion. 'Private-label' MBS have no guarantee and were central to 2008. The key risk is prepayment: when rates fall, owners refinance and investors are repaid early; when rates rise, repayments slow and the bonds lengthen.
Why it matters
They let lenders recycle money into new loans and made the 30-year fixed mortgage widely available. They also carried subprime losses worldwide in 2008.
Think of it like
Like buying a portfolio of mortgage notes: you collect the payments, but borrowers can pay you off early whenever refinancing is cheaper.
Facts, rules and data
Agencies publish pool and loan-level data; SIFMA tracks issuance. The Fed's weekly H.4.1 report shows its holdings. Investors usually get exposure through MBS or aggregate bond funds, where MBS are about a quarter.
Debates and risks
Whether Fannie and Freddie should leave conservatorship, as floated in 2025, and what that would do to mortgage rates, is unresolved.
Connections (6)
▸Quantitative easing (QE): buying bonds to push down rates bought trillions of Mortgage-backed securities (MBS)Fact, law or data
The connection
In QE the Fed bought mortgage bonds directly, bidding up their prices and lowering their yields. Lenders price new loans off MBS yields, so mortgage rates fell; the 30-year rate hit a record low of about 2.65% in January 2021. The Fed's MBS holdings peaked near $2.7 trillion in 2022, roughly a third of the agency market.
When and why
Announced November 25, 2008; purchases in 2009–10, 2012–14 and 2020–22, run by the New York Fed. Since December 2025 MBS paydowns are reinvested in T-bills.
How we know
The Fed's weekly balance sheet shows the holdings; studies found mortgage spreads over Treasuries dropped sharply on QE announcements.
Debates and risks
Whether MBS buying helped inflate 2020–22 house prices, and whether the Fed should hold only Treasuries to avoid favoring housing, is debated.
▸Mortgages and the 30-year fixed-rate loan are pooled into Mortgage-backed securities (MBS)Fact, law or data
The connection
Lenders make home loans, then sell them to Fannie Mae or Freddie Mac, or package them under Ginnie Mae. Thousands of similar loans are pooled into one security and guaranteed for a fee. Investors receive the principal and interest; lenders get cash to lend again. So MBS yields, not just banks, set mortgage rates.
When and why
Since Ginnie Mae's first pass-through in 1970. Today roughly two-thirds of US home mortgage debt sits in agency MBS.
How we know
The agencies publish each pool's loans, and Fannie and Freddie release loan-level data; SIFMA tracks issuance volumes.
Debates and risks
Whether ending Fannie and Freddie's conservatorship, floated in 2025, would raise mortgage rates by weakening the implied government guarantee.
▸Mortgage-backed securities (MBS) were repackaged into CDOs: repackaged mortgage debtFact, law or data
The connection
Private-label subprime mortgage bonds were sliced into tranches, and the lower-rated BBB slices were hard to sell. CDO managers bought them by the hundred, pooled them, and re-sliced the pool so most new tranches were rated AAA. Some CDOs then bought slices of other CDOs ('CDO-squared'), stacking the same mortgage risk again.
When and why
Wall Street structuring desks, 2004–2007; by 2006 slices of subprime mortgage bonds made up most of the collateral in new CDOs of asset-backed securities.
How we know
Deal documents analyzed by the Financial Crisis Inquiry Commission show the collateral; losses on those CDOs tracked subprime default rates closely.
Debates and risks
How much CDO demand itself pushed lenders to keep making weak loans, as many believe, is hard to measure precisely.
▸Mortgage-backed securities (MBS) mostly carry guarantees from Fannie Mae, Freddie Mac and the FHFAFact, law or data
The connection
Fannie and Freddie pool thousands of conforming mortgages into securities and guarantee that investors get principal and interest on time, even if homeowners default. Investors still carry interest-rate and prepayment risk, but not credit risk, which makes these 'agency MBS' nearly as easy to trade as Treasuries.
When and why
Freddie issued its first MBS in 1971 and Fannie in 1981; since 2019 both issue a common 'uniform MBS'. Ginnie Mae guarantees the government-insured remainder.
How we know
SIFMA and FHFA data show about $9 trillion of agency MBS outstanding, most from Fannie and Freddie; the Fed bought trillions of them in quantitative easing.
Debates and risks
Whether investors would demand higher yields, raising mortgage rates, if Fannie and Freddie left conservatorship without an explicit federal guarantee is debated.
▸CMBS: conduit loans pooled into commercial mortgage bonds is the commercial cousin of Mortgage-backed securities (MBS)Fact, law or data
The connection
Both pool mortgages into bonds. Most residential MBS are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae, so investors mainly bear prepayment risk. Private CMBS carry no guarantee, so investors bear the credit risk, sliced into tranches, while lockouts and defeasance protect them from early payoff.
When and why
Residential pass-throughs began with Ginnie Mae in 1970; CMBS took off in the 1990s after the RTC showed commercial loans could be pooled.
How we know
Deal prospectuses, SIFMA issuance statistics, and the guarantee terms published by Fannie Mae, Freddie Mac and Ginnie Mae.
Debates and risks
Agency apartment bonds, such as Freddie Mac's K-deals, blur the line: senior slices are guaranteed, junior ones are not.
▸Agency apartment loans: Fannie Mae DUS and Freddie Mac Optigo are securitized as agency Mortgage-backed securities (MBS)Fact, law or data
The connection
Fannie pools DUS loans, often one loan per bond, into DUS MBS and guarantees timely payment. Freddie sells K-Deal bonds: it guarantees the senior classes and sells the riskiest first-loss slice to private 'B-piece' investors. Bond buyers such as banks, insurers and foreign investors supply the money, which keeps agency loan rates low.
When and why
Fannie has issued DUS MBS since the 1990s; Freddie's K-Deal program began in 2009 and became a major source of multifamily bonds.
How we know
Bond prospectuses and monthly loan-level disclosures published by both agencies, and agency MBS market data from SIFMA.
Debates and risks
How far investors rely on an implicit government backstop, and how pricing would change after any exit from conservatorship, is uncertain.