Securitisation, where investors buy pools of debt from banks as secured assets, has enabled mortgage lenders in the UK to offer an increased number of lower risk, long term fixed rate mortgages, it is claimed.
Securitisation was originally intended to free up funding for banks, allowing them to sell packages of mortgage loans and lend out the proceeds to more customers. Those loans could then be sold on, and the cycle could start again.
The process was also intended to reduce risks for banks by spreading the ownership of mortgages and other loans among other investors but it came under scrutiny during the global economic downturn and used less frequently as a result.
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