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    Managing the Risk Associated with Securitization

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    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?

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    https://brainmass.com/business/derivatives/managing-risk-associated-securitization-555335

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    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 ...

    Solution Summary

    The risks associated with securitization management are discussed. The key roles in rating agencies to play in managing the risks are given.

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