A Mortgage-Backed Security (MBS) is a type of Asset-Backed Security (ABS) specifically collateralised by a pool of mortgage loans — including home loans, commercial property loans, or loans against property — in which the monthly principal and interest repayments made by borrowers flow through to MBS investors as periodic cash flows. MBS are created through securitisation — a housing finance company or bank sells its mortgage receivables to an SPV, which issues MBS tranches to investors. MBS played a central role in the 2008 global financial crisis when deteriorating US subprime mortgage quality triggered catastrophic losses for MBS investors globally. In India, the National Housing Bank (NHB) has promoted MBS issuance to deepen the housing finance market and improve liquidity for mortgage lenders. For fixed income investors on Ventura Securities, MBS offer exposure to India's housing finance growth story but require careful analysis of the originator's underwriting standards, loan-to-value ratios, prepayment assumptions, and the credit enhancement structure protecting against borrower defaults.
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