During the 2007−2009 recession, many people who had taken out mortgages to buy homes found that they were having trouble making the payments on their mortgage. Because housing prices were falling, many found that the amount they owed on their mortgage was greater than the price of their home. Significant numbers of people defaulted on their mortgages. The following appeared in an article discussing this issue in the Economist magazine: Since foreclosures are costly for lenders as well as painful forborrowers, both sides could be better off by renegotiating a mortgage. The sticking-point, according to conventional wisdom, is securitization. When mortgages are sliced into numerous pieces it is far harder to get lenders to agree on changing their terms. Source: "Mortgage Mistakes," Economist, July 9, 2009.When a mortgage is renegotiated, lenders (win / lose) and borrowers (win / lose) .How does securitization result in mortgages being "sliced into numerous pieces"? A. Because the loans have been separated into several smaller loans with lower and higher interest rates. B. Because the loans have been bundled with other loans and resold to other investors. C. Because the loans have been separated into smaller loans to offer the home buyer smaller monthly payments. D. Because the loans have been bundled and then sold to the federal government. Why would securitization make renegotiating a loan moredifficult? A. The closing costs for several smaller loans may be prohibitively costly to the home buyer. B. The cost of information gathering for each investor holding the security may be prohibitively costly. C. Each investor holding the security may not agree to the terms of the renegotiation. D. The cost of negotiation with every investor holding the security may be prohibitively costly.
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During the 2007−2009 recession, many people who had taken out mortgages to buy homes found that they...
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