Disclaimer: my understanding below, but I don't work in the industry and haven't looked at this for a long time, so things might be wrong or have changed. SPV

Disclaimer: my understanding below, but I don't work in the industry and haven't looked at this for a long time, so things might be wrong or have changed. SPV is created which owns the loans and issues the securities. Securities are issued with varying degrees of seniority. Each tranche is rates by a ratings agency (Fitch or whoever). SPV may enter into derivatives contracts to reduce some tail risks, because these allow more of the tranches to have higher ratings. Buyers are often restricted to buying above a certain rating. I don't think they do their own modelling of individual MBS.