In structured finance, a mortgage-backed security (MBS) is a type of asset-backed security (ABS) that is secured by a pool of mortgages. To create an MBS, a bank or other financial institution buys up a bunch of mortgages on homes or other properties (or more recursively, a bunch of other MBS's), and packages them into a securitized financial product. The MBS may be "pass-through," in which case the interest and principal payments on the underlying mortgages pass through to the owner of the MBS, or they may be more complex products with more arcanely derived coupon payments, or even no payments at all.
Unlike a bond or other fixed-income security, in which the principal is paid back in a lump sump at a specified maturity date, the face value of an MBS is constantly declining over time, which makes sense because the underlying mortgages are also declining in value over time, as the mortgages holders gradually pay down the principal according to a fixed amortization schedule.