Stripped Money Backed Security (SMBS) Law and Legal Definition

Stripped money backed securities are securities created by stripping or separating the principal and interest payments from mortgages into two classes of securities, with each receiving a different proportion of the principal and interest payments. SMBS is the interest or principal paid on debt securities, rather than together. These securities allow investors to choose either an interest strip or principal strip depending on the interest rates. SMBS are highly sensitive to changes in interest rates.