The article explains how mortgages and mortgage-backed securities work. There are three main players in the mortgage market: originators, servicers, and insurers. Investors face risks like default, liquidity, interest rate, and prepayment. The most basic mortgage type is the level payment mortgage with a fixed monthly payment. Cash flow calculations for pass-through securities are illustrated. Prepayment rates are assumed to increase over time. Stripped mortgage-backed securities can focus on either principal or interest payments.