Residential Mortgage-Backed Securities

Residential Mortgage-Backed Securities (RMBS) are investment products created by pooling together a large number of individual home loans. Financial institutions package these mortgages and sell shares of the combined cash flow—payments made by homeowners on their loans—to investors. Essentially, investors earn money from the monthly mortgage payments, and the securities are structured to distribute the risks of borrower default or varying loan performance. RMBS are common in the financial markets and help banks free up capital to make new loans, while offering investors a way to earn returns linked to the housing market.