mortgage-backed securities

Securities that are created when a financial institution, such as Fannie Mae or Freddie Mac, purchases mortgages from the banks that issued the mortgages. The financial institutions package the mortgages and resell them into the secondary market where investors purchase them to earn current income in a relatively safe investment. The banks sell their mortgages so that they can make additional mortgage commitments and earn more fees. The payments on the underlying mortgages are used to make payments to the security holders. Mortgage-backed securities, such as those issued by Fannie Mae are secured by conventional mortgages with interest payments and the principle guaranteed.