Securitizations require credit enhancement and the mechanism for credit enhancing a structure are classified as internal and external.

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This statement is true. Securitizations are often credit enhanced to improve the credit rating of the asset-backed securities. Credit enhancement mechanisms can be classified as internal (such as overcollateralization, subordination, and reserve funds) or external (such as financial guarantees, letters of credit, and insurance).

Securitizations Require Credit Enhancement and the Mechanism for Credit Enhancing