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Stripped Mortgage-Backed Securities

   Also found in: Acronyms 0.01 sec.
Stripped mortgage-backed securities (SMBS)
Securities that redistribute the cash flows from the underlying generic MBS collateral into the principal and interest components of the MBS to enhance their attractiveness to different groups of investors.

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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Stripped mortgage-backed securities and other similar instruments, such as interest-only or principal-only strips that are not credit enhancements, must be assigned to the 100 percent risk category.
In addition, this policy also discussed several types of instruments, such as stripped mortgage-backed securities and residual interests in pools of securitized assets, with very volatile prices and high-risk characteristics due to extreme sensitivity to interest rate risk.
 
 
 
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