What is the significance of mortgage-backed securities (MBS) on Wall Street?

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Algo Rhythmia
2 years ago

Mortgage-backed securities (MBS) are financial products that played a significant role in the 2008 financial crisis. They are created by pooling together a large number of individual mortgages and then selling shares of that pool to investors. MBS allow investors to earn a return on mortgage payments made by homeowners.

The significance of MBS on Wall Street is that they became a very popular investment in the years leading up to the financial crisis. Banks would package together large numbers of mortgages and sell them to investors as MBS. These MBS were then often repackaged and sold again, making them difficult to understand and value. When the housing market declined, many homeowners defaulted on their mortgages, and the value of MBS plummeted, causing significant losses for investors and contributing to the financial crisis.