Mortgage-backed securities (MBS) are bundled investment packages created to help lenders such as banks make financing available to homebuyers. They are also a type of collateralized bond backed by a pool of mortgages and loans. MBSs offer a form of passive income with a degree of security to investors.

MBSs allow banks to obtain additional capital to fund mortgage lending activities. When banks lend money to borrowers, the loans are then sold at a discounted rate — or par — to the secondary market in exchange for cash proceeds. The proceeds from the mortgages are pooled together and packaged as MBSs. The MBS can then be sold to investors for a certain interest rate, which provides the bank with additional capital to fund existing and new mortgage loans.

The main benefit of MBSs to the investors is the steady stream of income that it creates from interest payments from the pool of mortgage loans. The pooled investments also provide a degree of security to the investor, and the risks of an individual loan are spread out amongst multiple investors. This removes the single point of failure associated with individual mortgages and means that if one loan defaults, it doesn't affect the entire pool of MBSs. They also provide liquidity and allow investors to buy and sell at short notice should the need arise.

In addition to investor benefits, MBSs can also help the wider economy by enabling more people to access mortgages and buy homes they would otherwise not be able to afford. This helps to keep the housing market moving and can spur economic growth in low-income areas.

MBSs can be a great investment option for those looking for a steady income. However, it is important to remember that the investment comes with risks, and any potential investors should do their due diligence to ensure their capital is well protected.