The principal and interest What is the true definition of Compound interest? Main part amount you are borrowing

Traditionally, when a bank makes loans, the loans become assets of the bank.

The flow of interest on the loans is the bank’s primary source of revenue.

Today, banks sell many of the loans they make rather than holding them as assets.

The loans are transformed into securities that are traded in financial markets. Loan securitization has had benefits for banks and for the economy, but it also played a role in the financial crisis of 2007–2009.

Indicate the two largest issuers of mortgage-backed securities (MBSs):

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  The two largest issuers of these mortgage-backed securities (MBSs) are the Federal National Mortgage Association, commonly known as Fannie Mae, and the Federal Home Loan Corporation, or Freddie Mac.
  

Find the correct explanation of Mortgage-backed securities (MBS):

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  Mortgage-backed securities (MBSs):
  

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  securities that entitle an owner to a share of payments on a pool of mortgage loans
  

Why Securitization occurs?

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  Benefits for Banks - banks sell mortgages because the possibility of default makes it risky to hold them
  

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  In addition, the loans made by a particular bank may be poorly diversified, increasing risk.
  
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  Why should a bank lend money in the first place if it plans to get rid of the loan?
  

- To reduce asymmetric information*

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  Demand for Mortgage-Backed Securities - MBSs are highly liquid and are considered safe because they are backed by prime mortgages and because of Fannie and Freddie’s links to the government*
  

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  Large purchasers include mutual funds and pension funds as well as banks
  
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