A mortgage-backed security (MBS) is an asset-backed security

Asset-backed security

An asset-backed security is a security whose value and income payments are derived from and collateralized by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets that are unable to be sold individually...

 that represents a claim on the cash flow

Cash flow

Cash flow is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company's value and situation.Cash flow...

s from mortgage loan

Mortgage loan

A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...

s through a process known as securitization

Securitization

Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...

.
The process of securitization

Securitization

Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations and selling said consolidated debt as bonds, pass-through securities, or Collateralized mortgage obligation , to...

 is complicated, and is highly dependent on the jurisdiction

Jurisdiction

Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...

 within which the process is conducted. The basics are:

1. Mortgage loans (mortgage notes) are purchased from banks and other lenders and assigned
   Assignment (law)
   An assignment is a term used with similar meanings in the law of contracts and in the law of real estate. In both instances, it encompasses the transfer of rights held by one party—the assignor—to another party—the assignee...
   
    to a trust
2. The trust assembles these loans into collections, or "pools"
3. The trust securitizes the pools by issuing mortgage-backed securities

While a residential mortgage-backed security

Residential mortgage-backed security

Residential mortgage-backed securities are a type of bond commonly issued in American security markets. They are a type of mortgage-backed security which are backed by mortgages on residential rather than commercial real estate.-Origins:...

 (RMBS) is secured by single-family or two to four family real estate, a commercial mortgage-backed security

Commercial mortgage-backed security

Commercial mortgage-backed securities are a type of mortgage-backed security backed by mortgages on commercial rather than residential real estate....

 (CMBS) is secured by commercial and multifamily properties, such as apartment buildings, retail or office properties, hotels, schools, industrial properties and other commercial sites.