The sale of a mortgage portfolio by setting up mortgage pass-through securities is an example of ________.

Question

Quizplus · Accepted Answer

Setting up mortgage pass-through securities involves pooling together a group of mortgages and creating securities out of the cash flows generated by them. This process is known as securitization, where the pooled mortgage loans are transformed into tradable securities that can be sold to investors. Thus, securitization is the correct choice.

Option A, credit enhancement is a process where measures are taken to improve the credit quality of a security, and this is not the case here.

Option C, unbundling, refers to the process of separating a package of assets into separate components, and this is not applicable here as we are pooling mortgages together to create securities.

Option D, derivatives, refer to financial instruments that derive their value from underlying assets or indices, and this is not relevant to the sale of mortgage portfolios through pass-through securities.

Option E, none of these, can be eliminated because there is a clear example given in the question stem, which is securitization.

The Sale of a Mortgage Portfolio by Setting Up Mortgage