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3 Cards in this Set
- Front
- Back
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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. |
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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. |
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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. |
