The Landscape of Mortgage-Backed Securities

Mortgage-backed securities (MBS) represent the second-largest asset class in the bond market, trailing only U.S. treasuries. These securities are structured bonds backed by home loans that are guaranteed by entities like Fannie Mae or Freddie Mac. While many retail investors may not trade MBS directly, the majority are exposed to these investments through ETFs and mutual funds. This indirect investment is crucial, as understanding the process behind MBS can help investors better navigate the complexities of the mortgage market and its implications on financial stability.