Loans that are to be securitized are passed on to ____________.This helps ensure that if the lender goes bankrupt,it does not affect the credit status of the pooled loans.

Question

Quizplus · Accepted Answer

Securitization involves pooling together individual loans to form a new financial instrument that can be sold to investors. To ensure that the credit status of the pooled loans is protected even if the originator goes bankrupt, a special-purpose entity (SPE) is created. The SPE purchases and holds the loans, issues securities to investors, and uses the cash flows from the underlying loans to pay the interest and principal on those securities. The trustee oversees the operations of the SPE, while the servicer manages the day-to-day administration of the loans. The credit enhancer provides credit protection to the investors. Therefore, the best choice is B because the SPE is responsible for holding the loans and issuing securities.

Loans That Are to Be Securitized Are Passed on to ____________.This