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What is a Mortgage Pool?

A mortgage pool is a group of mortgages in a mortgage-backed security (MBS).

How Does a Mortgage Pool Work?

Once a lender completes a mortgage transaction, it generally sells the mortgage to another entity. The entities that buy mortgages -- for example, Fannie Mae and Freddie Mac -- package hundreds of mortgages together into a mortgage pool. The mortgage pool then acts as collateral for a mortgage-backed security.

Why Does a Mortgage Pool Matter?

An MBS is collateralized by a mortgage pool. Mortgages in a mortgage pool tend to have similar characteristics. For example, they may all be 30-year, fixed-rate mortgages.

MBSs should not be confused with CDOs, or 'collateralized debt obligations.' A CDO is collateralized by a pool of loans with varying characteristics. For example, they may have different terms (10-year, 15-year, 30-year) and adjustable rates.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.