how do mortgage-backed security and mortgage REIT differ?
One is a security – the MBS, the other is a corporate entity – the REIT. Mortgage REITS raise capital by issuing Mortgage Backed Securities. The MBS is a pool of mortgages that are packaged and sold to investors. The REIT is a corporate form that is principally in the business of originating or buying mortgages and making money on the difference between what they borrow money for and what they earn on the mortgages. Overly Simple Example: A Mortgage REIT raises capital by issuing MBS that pay 4% interest. The Mortgage REIT takes that money and lends it to mortgage borrowers at 6%. The REIT keeps the difference or 2%.
