When a bank securities a parcel of its home loans, the credit risk posed by the loans is borne by:

Question

Quizplus · Accepted Answer

When a bank securitizes its home loans, it creates mortgage-backed securities that are sold to investors. The credit risk of the underlying loans is then transferred from the bank to the investors who hold the securities. In other words, the investors bear the risk of default or delinquency on the loans, not the bank whose loans are being sold or the ratings agency.

When a Bank Securities a Parcel of Its Home Loans