Which of the following is true with regard to the securitization of mortgage loans?
A. The loans used to back the collateralized debt obligations (CDOs) have risks that cannot be diversified.
B. In the securitization of mortgages, diversification cannot be achieved by pooling mortgages for house purchases in different parts of the country.
C. The bank buying mortgage loans issues new securities referred to as collateralized debt obligations (CDOs).
D. In constructing collateralized debt obligations (CDOs), cash flows from the mortgages to the tranches reflect a spiral model.
Answer:C
Which of the following is true with regard to the securitization of mortgage loans?
A. The loans used to back the collateralized debt obligations (CDOs) have risks that cannot be diversified. B. In the securitization of mortgages, diversification cannot be achieved by pooling mortgages for house purchases in different parts of the country. C. The bank buying mortgage loans issues new securities referred to as collateralized debt obligations (CDOs). D. In constructing collateralized debt obligations (CDOs), cash flows from the mortgages to the tranches reflect a spiral model.