Stripped Mortgage-Backed Security

Stripped Mortgage-Backed Security

A mortgage-backed security with a cash flow that derives exclusively from interest payments or principal payments on the underlying mortgages. That is, the underlying asset of a stripped MBS is interest or principal paid on debt securities, rather than both together. Stripped mortgage-backed securities are extremely sensitive to changes in interest rates, allowing investors to choose either an interest strip or a principal strip depending on the expected direction of interest rates.
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Notwithstanding this allocation of payments to Class F, Class B is specifically entitled to the last $10,000 of principal to be paid out on a specific piece of collateral, the Fannie Mae Stripped Mortgage-Backed Security Trust 250 Class 1 (the principal only class).