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Mortgage Bond
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A mortgage bond is a debt obligation secured by a mortgage on a commercial or residential property. A mortgage bond may also be secured by a piece of equipment. Because a mortgage bond is backed by physical assets, most investors consider a mortgage bond a relatively low-risk investment. The nation's largest mortgage bond issuers are two US government agencies - Fannie Mae and Freddy Mac. These entities buy mortgages from lenders and package them into mortgage bond securities which are sold to investors. Investors may purchase mortgage bond securities when they are issued or afterwards in the secondary market. The holder of the mortgage bond security receives payments of interest and principal as the underlying mortgage loans are paid off. Mortgage bond yields vary and are determined by the likelihood of default by the borrower. Changes in interest rates also impact the value of a mortgage bond.
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