CDOs vs MBS

Collateralized Debt Obligations (CDOs) and Mortgage-Backed Securities (MBS) are types of financial investments based on pools of loans. MBS are made up specifically of mortgage loans—home loans, for example—bundled together and sold to investors, who receive regular payments from homeowners. CDOs are more complex; they can include various types of debt, including MBS, corporate bonds, or loans, pooled together and divided into slices with different risk levels. Both serve to transfer risk and liquidity but differ in their composition and risk profiles, with CDOs often being more complex and, historically, riskier.