Securitization of Mortgages

Securitization of mortgages is the process where banks bundle many individual home loans into a large financial product called a mortgage-backed security (MBS). These securities are then sold to investors, allowing lenders to free up capital to issue more loans. Investors receive regular payments based on the mortgage borrowers’ principal and interest. This process helps distribute the risk of mortgage defaults and makes funding for home loans more available. Essentially, it turns many individual mortgages into tradable assets, improving liquidity in the housing and financial markets.