Mortgage Bond

A bond secured by a mortgage on one or more assets. These bonds are typically backed by real estate holdings and/or real property such as equipment. In a default situation, mortgage bondholders have a claim to the underlying property and could sell it off to compensate for the default.

Investopedia Says:
Mortgage bonds offer the investor a great deal of protection in that the principal is secured by a valuable asset that could theoretically be sold off to cover the debt. However, because of this inherent safety, the average mortgage bond tends to yield a lower rate of return than traditional corporate bonds that are backed only by the corporation's promise and ability to pay.

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Bond issue secured by a mortgage on the issuer's property, the lien on which is conveyed to the bondholders by a deed of trust. A mortgage bond may be designated senior, underlying, first, prior, overlying, junior, second, third, and so forth, depending on the priority of the lien. Most of those issued by corporations are first mortgage bonds secured by specific real property and also representing unsecured claims on the general assets of the firm. As such, these bonds enjoy a preferred position relative to unsecured bonds of the issuing corporation. See also Consolidated Mortgage Bond; Mortgage.

Tax-exempt securities sold by municipal and state authorities for the purpose of providing low-interest rate Mortgage loans to qualified individuals. For most programs, mortgage borrowers must be first-time home buyers with moderate income.
Example: Local Housing Finance Agency, a creation of the city of Local, sold $50 million of mortgage bonds. The proceeds from the sale were used to originate loans through local mortgage lenders for first-time home buyers within the city. Interest on the bonds was tax-exempt to the bondholders, thereby allowing the agency to borrow money at an Interest Rate below 6%. The mortgage loans could be originated at rates below 7% at a time when market mortgage interest rates were above 8%.