What are Mortgage-Backed Securities?

Mortgage-Backed Securities (MBS) are defined as a type of asset-backed security that is specifically secured by a collection of mortgages. This means that when mortgages are pooled together, they can be sold to investors as securities. The cash flows generated from the mortgage payments made by borrowers are used to pay returns to the investors who hold these securities.

In this context, MBS allow lenders to manage their risks and liquidity more effectively by converting illiquid mortgage loans into liquid securities that can be traded in the financial markets. Investors who purchase MBS receive interest and principal payments from the underlying mortgage loans, which gives them exposure to the real estate market without needing to buy properties directly.

This is distinctly different from the other options presented. For example, the notion of equity securities refers to the ownership in a company, while loans for mortgage lenders focus on financing for the lenders themselves rather than the security markets. Finally, government assistance programs typically do not serve as investment vehicles like MBS do; instead, they aim to provide financial relief or support for borrowers. Thus, option B effectively captures the essence of Mortgage-Backed Securities.