Credit Risk Management Practice Exam

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What significant percentage of subprime mortgages were securitized in the recent past?

  1. 50%

  2. 60%

  3. 75%

  4. 85%

The correct answer is: 75%

The significant percentage of subprime mortgages that were securitized in the recent past is indeed 75%. This reflects the trend observed leading up to the financial crisis, where a substantial portion of mortgage originations were bundled into mortgage-backed securities (MBS). The process of securitization allowed lenders to offload the risk of these loans to investors and freed up capital for further lending, contributing to the rapid growth of subprime lending. The 75% figure captures the volume of high-risk mortgages that were packaged and sold to investors, often leading to heightened systemic risk in the financial markets. Securitization created a disconnect between borrowers and lenders, which, in addition to the inherent risks of subprime lending, contributed to the eventual collapse of the housing market. This understanding of the securitization of subprime mortgages is crucial for analyzing the dynamics of credit risk management and the vulnerabilities in financial systems.

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