Tranching makes it so that packages of reliable, low-risk mortgages could be sold to ______________, while higher-risk subprime mortgages could be sold to ___________.

Question

Quizplus · Accepted Answer

Tranching allows for the creation of different risk levels within a mortgage-backed security. The packages of reliable, low-risk mortgages (known as the senior tranche) can be sold to more risk-averse investors, such as pension funds or insurance companies. The higher-risk subprime mortgages (known as the junior or mezzanine tranches) can be sold to risk-loving investors, such as hedge funds or investment banks.

Tranching Makes It So That Packages of Reliable, Low-Risk Mortgages