In hindsight, mortgage-backed securities implied very limited risk because the underlying mortgages were spread across different geographic areas.

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While the geographic diversification of underlying mortgages did provide some risk mitigation, the mortgage-backed securities still carried significant risk due to factors such as borrower default rates, fluctuations in interest rates, and the quality of the mortgages themselves. The financial crisis of 2008 demonstrated the potential for significant losses associated with mortgage-backed securities.

In Hindsight, Mortgage-Backed Securities Implied Very Limited Risk Because the Underlying