What happens to a borrower’s payment when they send it in every month?

What happens to a borrower's payment when they send it in every month? Sometimes servicers/investors will

separate the principal and interest amounts, and if a company does this enough two new securities can be

created: and IO (Interest Only) and PO (Principal Only). Stripped MBSs have been around for twenty years. Each

stripped security receives a percentage of the underlying security principal or interest payments.  For example,

the cash flow of a 6% pass-through can be used to make two new stripped securities, one with 4% coupon and

another with 8% coupon, by directing more of the interest to the security with higher coupon.  Stripped securities

can be partially stripped, meaning that each investor receives some combination of principal and interest

payments, or completely stripped. Both IOs and POs show substantial price volatility in an environment of

changing mortgage rates. Now, onto the market...