Mortgage-Backed Bonds
According to www.riskglossary.com, a mortgage backed security is a
securitized interest in a pool of mortgages.
It pays out the cash flow from the pool of mortgages. It is a bond. The simplest form of mortgage backed security is mortgage pass through.
Investors receive all principal and interest payment less servicing fee from the pool of mortgages every month. The originator can sell the rights to service the mortgages to a third party.
The cash flow to holder is not fixed although mortgage payment schedule is fixed. This happens because mortgage holders have the option of prepaying mortgages.
When mortgage is prepaid, MBS investors receive principal payments early without future interest they could have earned on the principals.