These benefits occur because securitization allows lenders to reallocate risk to other parties (fixed income investors) that have a comparative advantage on bearing (or alternately a greater preference for) it. Since the lenders no longer have to keep the loans in their portfolio, they are willing to lend to borrowers with less pristine credit. As an example of this trend:
...Strong investor interest has also made loans available to borrowers with poor credit and many other people who might otherwise have trouble getting a mortgage. Subprime loans included in mortgage securities totaled $401.5 billion last year, nearly double the total for 2003, according to Standard & Poor's. Meanwhile, loans with less than full documentation of the borrower's income and assets accounted for 70% of mortgage securities rated by Standard & Poor's in this year's first half, double the level recorded in 2000.As a result, interest rates are lower all along the risk spectrum. Finally, investors willing to bear the risk (in this case foreign investors) have more investment options.
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