# 🍪 MBS

By [Let Them Eat Cake](https://paragraph.com/@ltecake) · 2022-06-21

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**TL,DR: Like girl scout cookies, MBS are lucrative products sold to support a larger enterprise**

Mortgage Backed Security (MBS) / Girl Scout Cookies

*   product sold in support of a larger enterprise
    
*   higher yield relative to the boy scout popcorn
    

Eatamology

“Mortgage Backed” infers the proceeds from a loan given to prospective homebuyers from a bank or lending company, where the home becomes collateral for the loan, are used to finance this product. “Security” can be used interchangeable with financial product and refers to the “securitization” or packaging of the mortgages into a tradable unit.

Financials

MBS are composed of prime or subprime mortgages, which carry varying levels of risk.

Prime | Thin Mints and Forgetmenots

When the mortgages are backed by trustworthy borrowers with stable sources of income and timely payments, they are considered prime and pay lower interest. Think of the prime products like Thin Mints and Forgetmenots, tasty and predictable.

Subprime | Knockoff Cookies

When the bundle of mortgages is riskier, the interest payments are higher as compensation for the risk of default. These are your knockoff girl scout cookies and the unproven flavors. In exchange the risk of disappointment, they are sold at a discount. For additional context, Margot Robbie calls subprime mortgages “sh\*t” when explaining their role in causing the Great Recession of 2008 during the film Wolf of Wall Street.

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*Originally published on [Let Them Eat Cake](https://paragraph.com/@ltecake/mbs)*