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3 Cards in this Set

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What are Government Sponsored Enterprises? What advantages do they offer borrowers and lenders?

GSE's are financial corporations created by the government. The advantage they offer is that they can take a mortgage and make a mortgage backed security, thus matching lenders and borrowers. On top of that, if the security goes bad, the investor is safe from credit loss.

Define securitization. Why would firms want to engage in securitization?

Securitization is process in which mortgages combined into a single package that is sold to investor who hopes to make money off it. Firms would want to engage in it because it takes a lot of risk off their backs and can help them profit greatly, sending the risk to whomever bought the security.

Why might securitization become a vulnerability?

It's pretty complex and the risk is unknown as a result. No one knows who is at risk or where the losses will be. Especially considering all sorts of securities that were made to many places.