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 while providing investors with a stream of income. MBS are typically issued by government-sponsored entities like Fannie Mae or Freddie Mac, or by private financial institutions. They can vary in risk and return, depending on the quality of the underlying mortgages. Overall, MBS play a significant role in the housing finance system.