Editing Derivative (finance) (section)

===Mortgage-backed securities===
A [[Mortgage-backed security|'''mortgage-backed security''' ('''MBS''')]] is an [[asset-backed security]] that is secured by a [[mortgage]], or more commonly a collection ("pool") of sometimes hundreds of [[mortgage loan|mortgages]]. The mortgages are sold to a group of individuals (a government agency or investment bank) that "[[securitization|securitizes]]", or packages, the loans together into a security that can be sold to investors. The mortgages of an MBS may be [[Residential mortgage-backed security|residential]] or [[Commercial mortgage-backed security|commercial]], depending on whether it is an Agency MBS or a Non-Agency MBS; in the United States they may be issued by structures set up by [[government-sponsored enterprise]]s like [[Fannie Mae]] or [[Freddie Mac]], or they can be "private-label", issued by structures set up by investment banks. The structure of the MBS may be known as "pass-through", where the interest and principal payments from the borrower or homebuyer pass through it to the MBS holder, or it may be more complex, made up of a pool of other MBSs. Other types of MBS include [[collateralized mortgage obligation]]s (CMOs, often structured as real estate mortgage investment conduits) and [[collateralized debt obligation]]s (CDOs).<ref>Lemke, Lins and Picard, ''Mortgage-Backed Securities'', Chapters 4 and 5 (Thomson West, 2013 ed.).</ref>

The shares of subprime MBSs issued by various structures, such as CMOs, are not identical but rather issued as [[tranche]]s (French for "slices"), each with a different level of priority in the debt repayment stream, giving them different levels of risk and reward. Tranches{{snd}}especially the lower-priority, higher-interest tranches{{snd}}of an MBS are/were often further repackaged and resold as collaterized debt obligations.<ref>Josh Clark, [http://www.howstuffworks.com/mortgage-backed-security.htm "How can mortgage-backed securities bring down the U.S. economy?"], How Stuff Works</ref> These subprime MBSs issued by investment banks were a major issue in the [[subprime mortgage crisis]] of 2006–2008
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The total face value of an MBS decreases over time, because like mortgages, and unlike [[Bond (finance)|bonds]], and most other fixed-income securities, the [[Debt|principal]] in an MBS is not paid back as a single payment to the bond holder at maturity but rather is paid along with the interest in each periodic payment (monthly, quarterly, etc.). This decrease in face value is measured by the MBS's "factor", the percentage of the original "face" that remains to be repaid.