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So the mortgage is bundled and sold as a securitized instrument in tranches, etc. That explains the contract side of a mortgage. When an individual makes a monthly payment on that mortgage, how does the money for that specific mortgage find its way to its rightful creditor? This question is about the money side of a mortgage backed security.

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up vote 4 down vote accepted

The money is paid to investors who bought those mortgage backed securities. The company that services those loans is responsible for making sure the money is paid to the right investors

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And the servicing company takes a little cut? But the investor is okay with that because they don't have to service it or handle phone calls? – MrChrister Dec 15 '12 at 8:51
yes, the investors also lower the risk by spreading the risk over multiple mortgages. – Vitalik Dec 15 '12 at 13:37

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