When banks bundled mortgage loans and sold the resulting mortgage-backed securities,

Question

Quizplus · Accepted Answer

When banks bundled mortgage loans and sold the resulting mortgage-backed securities, they reduced their direct exposure to mortgage default risk but were still exposed through loans to investors in mortgage-backed securities. This is because if the investors who bought the securities defaulted on their loans, the banks would suffer losses. Therefore, while the banks reduced some of the risk associated with mortgage defaults, they did not eliminate it entirely.

When Banks Bundled Mortgage Loans and Sold the Resulting Mortgage-Backed