Which of the Following Statements Regarding Subprime Mortgages Is TRUE

question 12

Multiple Choice

Which of the following statements regarding subprime mortgages is TRUE?

• A) Subprime mortgages are not Ginnie Mae guaranteed, so CMO investors are exposed to default risk
• B) Subprime mortgages are not Ginnie Mae guaranteed, so securities backed by subprime mortgages cannot be issued
• C) CMOs backed by subprime mortgages cannot be used as collateral for CDOs
• D) Because of diversification, securities backed by subprime loans and no more risky than those back by prime loans

---

Definitions:

Risk

A potential loss.

Perfect Tender Rule

This rule allows buyers to reject goods that do not precisely meet the quality, quantity, and delivery terms specified in the contract.

Minor Flaws

Small defects or imperfections that do not significantly affect the overall functionality or value of an item.

Rigidity

The quality of being unable to bend or be forced out of shape; not flexible.