Tranching allows packages of reliable, low-risk mortgages to be sold to _______ and higher-risk subprime mortgages to___________.

Question

Quizplus · Accepted Answer

Tranching involves creating different risk categories, or tranches, of mortgage-backed securities. The lower-risk tranches are sold to risk-averse investors who are willing to accept lower returns in exchange for greater reliability, while the higher-risk tranches are sold to risk-loving investors who are willing to take on higher risk in exchange for potentially higher returns.

Tranching Allows Packages of Reliable, Low-Risk Mortgages to Be Sold