Glossary: FI Module 19 — MBS Features
| Term | Definition |
|---|---|
| Residential MBS (RMBS) | A mortgage-backed security collateralized by residential mortgage loans |
| Commercial MBS (CMBS) | A mortgage-backed security collateralized by commercial real estate loans |
| Mortgage pass-through | An MBS where investors receive a pro-rata share of all principal and interest from the mortgage pool |
| Collateralized mortgage obligation (CMO) | A multi-tranche MBS that redistributes mortgage cash flows into tranches with different risk/return profiles |
| PAC tranche (Planned Amortization Class) | A CMO tranche with a predictable cash flow schedule within a defined prepayment band |
| Support (companion) tranche | A CMO tranche that absorbs prepayment variability to stabilize the PAC tranche |
| Sequential-pay tranche | CMO tranches that receive principal payments in a predetermined order |
| Z-tranche (accrual tranche) | A CMO tranche that accrues interest (added to principal) and receives no cash until prior tranches retire |
| Prepayment risk | The risk that mortgage borrowers pay off loans earlier or later than expected |
| Loan-to-value (LTV) ratio | Mortgage amount / Property value; a key credit metric for MBS |
| Agency MBS | MBS guaranteed by government agencies (Ginnie Mae) or GSEs (Fannie Mae, Freddie Mac) |
| Non-agency MBS | MBS without government or GSE guarantees; higher credit risk, requires credit enhancement |
See also: Securitization