Explain what is meant by a residential mortgage-backed security
What will be an ideal response?
By a residential mortgage-backed security (RMBS), we mean a security that is created when residential mortgages are packaged together to form a pool of mortgage loans and then one or more debt obligations are issued backed by the cash flow generated from the pool of mortgage loans. "Backed" means that the principal and interest due to the investors in an RMBS come from the principal and interest payments made by the borrowers whose loans are part of the pool of mortgages. A mortgage loan that is included in an RMBS is said to be securitized, and the process of creating an RMBS is referred to as securitization.
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