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The investment banks called these bundles "mortgage back securities or MBS". and they sold these MBS's as bonds and stocks to anyone who wanted to invest in them.

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I don't get it, how can bundled mortgages be treated as bond's /stocks? To my understanding stocks are a way to claim ownership of a 'company'..

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    If you buy a mutual fund, you're buying ownership of the fund, not the individual stocks the fund owns. Same for a gold backed ETF; you don't own any actual physical metal, but the fund does. If you bought into one of these, you bought an ownership interest in the portfolio of mortgages, and accordingly, a portion of the proceeds from the monthly mortgage payments within.
    – ceejayoz
    Commented Nov 27, 2021 at 17:47
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    Or consider buying stock in a mortgage lender: you then own a fraction of all the mortgages the company holds. Mortgage backed securities just bundle a number of those mortgages together, and sell them as a unit.
    – jamesqf
    Commented Nov 27, 2021 at 18:10

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Mortgage-backed securities are considered a bond see FINRA that is secured by pooling various types of real estate loans.

One could also consider them to be a 'derivative security' which refers to a security whose value is dependent on some other asset(s).

If you really want to see crazy, prior to the Global Financial Crisis they were packaging disparate mortgage securities into tranches, based on the rating of the security. I didn't understand this until I read "the Big Short" where Michael Lewis compared it to the risk of owning the same floor in each of a number of apartment buildings.

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This may just be a confusion with the linked author's wording.

I would rewrite the passage as the following:

The investment banks called these bundles "mortgage back securities or MBS". and they sold these MBS's [similar to] stocks and bonds [thus] to anyone who wanted wanted to invest in them.

MBS are securities distinct from stocks with similarities to bonds.

It may help to read Question about MBS and how it pays if you need details on MBS themselves.

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