A supposition of mortgage securitization is that:

Question

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Mortgage securitization assumes that a large fraction of loans will not go bad at the same time. This principle of diversification is essential for the securitization process to work effectively. By pooling a large number of mortgages together, the risk of default is spread out, reducing the overall risk of the investment. This allows for the creation of mortgage-backed securities, which can be sold to investors who are looking for a steady stream of income. However, if too many loans default at the same time, the risk of the investment increases significantly. Therefore, the assumption that only a small fraction of loans will default at any given time is critical.

A Supposition of Mortgage Securitization Is That