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Asset Backed Securities vs. Mortgage Backed Securities: What's the Difference?

Edited by Sawaira Riaz || By Sumera Saeed || Published on December 28, 2023
Asset-backed securities (ABS) are bonds backed by various types of financial assets, whereas mortgage-backed securities (MBS) are a type of ABS specifically backed by mortgages on real estate properties.

Key Differences

Asset-backed securities can be backed by various types of assets like auto loans, credit card debt, or student loans. Mortgage-backed securities are exclusively backed by home loans or mortgages.
Sumera Saeed
Dec 28, 2023
The risk and return profile of ABS varies depending on the underlying assets, which can range from high-grade to subprime. MBS typically have a risk profile influenced by the housing market and the creditworthiness of mortgage holders.
Sumera Saeed
Dec 28, 2023
ABS caters to a broad range of investors due to its diverse asset base, while MBS is often sought after by investors seeking real estate exposure without directly investing in property.
Sumera Saeed
Dec 28, 2023
The cash flows of ABS depend on the payment patterns of the underlying assets. In MBS, cash flows are determined by mortgage payments, which include both interest and principal components.
Sawaira Riaz
Dec 28, 2023
Both ABS and MBS are subject to regulatory scrutiny, but MBS may face more specific regulations due to their direct link to the real estate market and their role in past financial crises.
Sumera Saeed
Dec 28, 2023
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Comparison Chart

Underlying Assets

Diverse (loans, receivables, leases).
Specifically home loans or mortgages.
Sumera Saeed
Dec 28, 2023

Risk and Return

Varies widely based on asset type.
Influenced by housing market, mortgage creditworthiness.
Sawaira Riaz
Dec 28, 2023

Investor Market

Broad range of investors.
Investors seeking real estate market exposure.
Sumera Saeed
Dec 28, 2023

Cash Flow

Depends on underlying asset payments.
Determined by mortgage payments.
Harlon Moss
Dec 28, 2023

Regulatory Environment

Subject to general financial regulations.
More specific regulations due to housing market link.
Aimie Carlson
Dec 28, 2023
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Asset Backed Securities and Mortgage Backed Securities Definitions

Asset Backed Securities

A form of securitization for different types of loans.
Credit card debt is often securitized into asset-backed securities.
Janet White
Nov 22, 2023

Mortgage Backed Securities

Bonds collateralized by home loans.
The value of mortgage-backed securities is influenced by the housing market's performance.
Sawaira Riaz
Nov 22, 2023

Asset Backed Securities

Securities backed by a pool of assets.
The bank issued asset-backed securities to diversify its investment portfolio.
Sumera Saeed
Nov 22, 2023

Mortgage Backed Securities

Investments secured by residential or commercial mortgages.
Investing in commercial mortgage-backed securities diversifies my real estate portfolio.
Sumera Saeed
Nov 22, 2023

Asset Backed Securities

Financial instruments with returns dependent on asset performance.
Investors in asset-backed securities closely monitor the performance of the underlying assets.
Sumera Saeed
Nov 22, 2023

Mortgage Backed Securities

A form of securitization for mortgage debt.
Banks often securitize mortgages into mortgage-backed securities to redistribute risk.
Aimie Carlson
Nov 22, 2023

Asset Backed Securities

Bonds collateralized by various financial assets.
Asset-backed securities can provide stable returns in a diverse portfolio.
Sumera Saeed
Nov 22, 2023

Mortgage Backed Securities

Securities backed by mortgage loans.
Mortgage-backed securities are a popular choice for investors interested in real estate markets.
Sumera Saeed
Nov 22, 2023

Asset Backed Securities

Investments secured by receivables.
Auto loan receivables are commonly used to back certain asset-backed securities.
Sumera Saeed
Nov 22, 2023

Mortgage Backed Securities

Financial instruments with returns dependent on mortgage payments.
The returns on mortgage-backed securities depend on homeowners making their mortgage payments on time.
Sumera Saeed
Nov 22, 2023

FAQs

What are Asset-Backed Securities (ABS)?

ABS are financial securities backed by a pool of assets such as loans, leases, credit card debt, or receivables.
Sumera Saeed
Dec 28, 2023

What are Mortgage-Backed Securities (MBS)?

MBS are securities secured by mortgage loans, allowing lenders to sell the mortgages to investors.
Sawaira Riaz
Dec 28, 2023

How do ABS and MBS differ?

ABS are backed by various types of assets, whereas MBS are specifically backed by mortgage loans.
Sumera Saeed
Dec 28, 2023

Who issues MBS?

MBS are issued by government-sponsored enterprises like Fannie Mae and Freddie Mac, as well as private financial institutions.
Janet White
Dec 28, 2023

What is the purpose of MBS?

MBS allow lenders to sell mortgages, providing liquidity and the ability to issue more loans.
Janet White
Dec 28, 2023

Who issues ABS?

Financial institutions, banks, and lenders typically issue ABS.
Harlon Moss
Dec 28, 2023

What types of assets back ABS?

ABS can be backed by auto loans, student loans, credit card debt, and more.
Harlon Moss
Dec 28, 2023

Are MBS considered a type of ABS?

Yes, MBS are a specific type of ABS backed by mortgage loans.
Sumera Saeed
Dec 28, 2023

How are MBS priced?

MBS pricing depends on the credit quality of the mortgage loans, interest rate environment, and prepayment risk.
Janet White
Dec 28, 2023

What are the risks associated with ABS?

Risks include credit risk, interest rate risk, and the risk of the underlying asset performance.
Sumera Saeed
Dec 28, 2023

Can ABS and MBS be traded?

Yes, both ABS and MBS can be traded in the secondary market.
Janet White
Dec 28, 2023

How do ABS and MBS impact the financial market?

They provide liquidity, facilitate credit distribution, and contribute to financial market diversity.
Aimie Carlson
Dec 28, 2023

How are ABS priced?

ABS pricing is influenced by the credit quality of the underlying assets, interest rates, and market demand.
Sumera Saeed
Dec 28, 2023

What are the risks associated with MBS?

MBS risks involve homeowners' creditworthiness, interest rate changes, and prepayment risk.
Sumera Saeed
Dec 28, 2023

How does prepayment risk affect MBS?

Prepayment risk in MBS arises when borrowers pay off mortgages early, impacting the investors' returns.
Aimie Carlson
Dec 28, 2023

What role do credit ratings play in ABS and MBS?

Credit ratings indicate the risk level of ABS and MBS, influencing investor decisions.
Aimie Carlson
Dec 28, 2023

What was the role of MBS in the 2008 financial crisis?

MBS, particularly those with subprime mortgages, were a major factor in the 2008 financial crisis due to defaults and falling housing prices.
Aimie Carlson
Dec 28, 2023

What is the purpose of ABS?

ABS provide a way for lenders to free up capital and manage risk by selling assets to investors.
Aimie Carlson
Dec 28, 2023

What is securitization in relation to ABS and MBS?

Securitization is the process of pooling various types of assets, including mortgages, to create securities like ABS and MBS.
Janet White
Dec 28, 2023

How do investors benefit from ABS and MBS?

Investors receive regular interest payments, and these securities diversify investment portfolios.
Sumera Saeed
Dec 28, 2023
About Author
Written by
Sumera Saeed
Sumera is an experienced content writer and editor with a niche in comparative analysis. At Diffeence Wiki, she crafts clear and unbiased comparisons to guide readers in making informed decisions. With a dedication to thorough research and quality, Sumera's work stands out in the digital realm. Off the clock, she enjoys reading and exploring diverse cultures.
Edited by
Sawaira Riaz
Sawaira is a dedicated content editor at difference.wiki, where she meticulously refines articles to ensure clarity and accuracy. With a keen eye for detail, she upholds the site's commitment to delivering insightful and precise content.

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