when homeowners pay their mortgages the interest portion of their payment is used to pay the yield on these mortgage bonds as long as most of the homeowners in the mortgage pool keep up with their payments a mortgage bond is a safe and reliable income producing security 
advantages and disadvantages of mortgage bondsa disadvantage of mortgage bonds is that their yields tend to be lower than corporate bond yields because the securitization of mortgages makes such bonds safer investments an advantage would be that if a homeowner defaults on a mortgage the bondholders have a claim on the value of the homeowner s property the property can be liquidated with the proceeds used to compensate bondholders another advantage of mortgage bonds is that they are a safer investment than stocks for example in contrast investors in corporate bonds have little to no recourse if the corporation is unable to pay as a result when corporations issue bonds they must offer higher yields to entice investors to shoulder the risk of unsecured debt the amount held in mortgage backed securities by the federal reserve as of march 20 2024 1subprime mortgage bondsone major exception to the general rule that mortgage bonds represent a safe investment became evident during the financial crisis of the late 2000s leading up to this period investors realized they could earn higher yields by purchasing bonds backed by subprime mortgages mortgages offered to buyers with poor credit or unverifiable income while still enjoying the supposed security of investing in collateralized debt unfortunately enough of these subprime mortgages defaulted to cause a crisis during which many mortgage bonds defaulted costing investors millions of dollars since the crisis there has been heightened scrutiny over such securities nevertheless the fed still holds a sizable amount of mortgage backed securities mbs such as mortgage bonds as of march 20 2024 the fed held around 2 4 trillion in mbs according to the federal reserve bank of st louis 1