A Mortgage-Backed Security (MBS) is a financial instrument created by pooling together multiple home loans. Investors buy shares of this pool, and in return, they receive payments derived from the mortgage borrowers' monthly payments. This allows lenders to free up capital to issue more loans. MBS can be categorized into two main types: pass-through securities, where payments are passed directly to investors, and collateralized mortgage obligations (CMOs), which divide the cash flows into different classes. These securities provide investors with a way to invest in real estate markets without directly owning property.