A Credit Default Swap is one way that lenders can offset some of the risks associated with investing in subprime mortgages.

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A Credit Default Swap (CDS) allows the lender to transfer the risk of default to a third party in exchange for a premium. This can help minimize the impact of default losses on the lender's portfolio. CDSs were commonly used in the subprime mortgage market prior to the financial crisis of 2008.

A Credit Default Swap Is One Way That Lenders Can