when an investor purchases these securities they are essentially buying a share in a pool of mortgages as homeowners make their monthly mortgage payments principal and interest the cash is collected by the gses or agency and distributed to mbs investor pro rata 
investors in mbs benefit from the regular cash flows from the underlying mortgages as well as the potential for capital appreciation if interest rates fall as the value of fixed income securities generally rises when interest rates decline however they also face prepayment risk which is the risk that homeowners may refinance or pay off their mortgages earlier than expected altering the cash flow profile of the mbs by investing in these mbs investors are exposed to the risks and returns associated with the underlying mortgages these mbs are backed by the full faith and credit of the u s government making them among the safest fixed income investments 10 these are called agency mbs as opposed to non agency private mbs which make up but a small part of the market 