It stands for mortgage-backed security; a security (specifically, a type of asset-backed security, ABS) which is secured by a mortgage or pool of mortgages. The mortgages are aggregated and sold to an entity that securitizes or packages them together into marketable securities (by means of securitization) that are then sold to investors.

A lender (mortgagee) combines its mortgages into a bundle and then divides it into specific shares/ slices (shares in the pool). An investor is entitled to receive a portion of the principal (as repayment) and interest payments on the underlying mortgages.

Revenues from the sale of mortgage-backed securities (MBSs) are used to compensate the issuers for the price paid to acquire the bundle of mortgages, their efforts in the securitization process and risks involved in the underlying mortgages.

Underlying mortgages may be residential or commercial or a combination thereof.