Legal Definitions - asset-backed security

An asset-backed security is a type of financial investment that is backed by a pool of assets, such as loans or mortgages. These assets generate cash flows, which are used to pay back the investors who bought the security.

For example, a bank may bundle together a group of mortgages and sell them as an asset-backed security to investors. The cash flows from the mortgage payments are used to pay back the investors who bought the security.

Asset-backed securities are a way for companies to raise money by selling off their assets. They are also a way for investors to diversify their portfolios and earn a return on their investment.