There are 4 questions. However, I don't know how to do #2. I have to read the article and answer the question. Can you help me in #2?
1. What's securitization? How does it encourage lax mortgage lending?
2. What key role were rating agencies supposed to play in managing the risk? Associated with securitization? In particular, without a rating agency, why would it have been hard (if not impossible) for securitization to have emerged?
3. Why did rating agencies do a poor job?
4. What can be improved to solve the problem?© BrainMass Inc. brainmass.com October 25, 2018, 8:52 am ad1c9bdddf
2. What key role were rating agencies supposed to play in managing the risk associated with securitization? In particular, without a rating agency, why would it have been hard (if not impossible) for securitization to have emerged?
In securitization, we take illiquid assets and transform them into a security. For example, a mortgage-backed security (MBS), which is secured by a collection of mortgages. The typical process for the securitization is as below:
1. A financial institution originates mortgages
2. These mortgages are secured by claims against the properties purchased by the mortgagors
3. Bundle individual mortgages into a ...
The risks associated with securitization management are discussed. The key roles in rating agencies to play in managing the risks are given.
Use the following list of risk management tools and describe the circumstances under which they would be applied to the risk categories of corporate (including risk associated with acquisition analysis and capital budgeting), economic, foreign currency, political, and other relevant global business risks.
1. Black-Scholes options pricing model
2. Simulation analysis