I just can’t wrap my mind around this.
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A bond is an investment where some entity (like a company, government agency) borrows money by selling the bonds, paying interest on the money and re-paying the principal at the maturity date. For the investor, they collect interest on their money and get the initial amount back at the end.
A mortgage backed security works like a bond, only instead of one borrower getting the proceeds of the bond sale, the investor is buying into a basket of 1000’s of mortgages. Instead of $200m going to fund a large public works project, it’s $200m worth of mortgages bundled together.
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