Question

When loans are pooled together to create homogeneous securities traded in public security markets, the process...

  1. When loans are pooled together to create homogeneous securities traded in public security markets, the process is referred to as __________.
  1. Securitization
  2. Secondary
  3. Whole Loan
  4. Primary
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Answer #1

Correct option is > A. Securitization

When loans are pooled together to create homogeneous securities traded in public security markets, the process is referred to as Securitization.

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Reason:

The loans are pooled and held in a trust, against those pooled loan (collateral) securitization is done and on underlying asset value the securities are issued in tranches. These securities can be traded in secondary or security market.

Example: CDO = Collateralized debt obligation and MBS = Mortgage Backed Security

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