The practice of approving mortgages in order to sell them as mortgage-backed securities is known as ________.
A)originate-to-distribute
B)principal-agent engineering
C)predatory lending
D)a credit default swap

Question

Quizplus · Accepted Answer

The practice of approving mortgages in order to sell them as mortgage-backed securities is known as originate-to-distribute. This involves originating (approving) loans, packaging them together as securities, and selling them to investors. This process helped fuel the subprime mortgage crisis.

B) incorrect - Principal-agent engineering refers to the process of designing incentives to motivate agents to act in the best interest of their principals. 
C) incorrect - Predatory lending refers to the practice of giving unfair or abusive loan terms to borrowers, often taking advantage of their lack of financial knowledge or difficult financial situations. 
D) incorrect - A credit default swap is a financial contract in which one party agrees to compensate another party in case of a default on a particular loan or bond. It is not directly related to the practice of approving mortgages for sale as securities.

The Practice of Approving Mortgages in Order to Sell Them