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When mortgages are pooled into securities, the pass-through agency typically guarantee the underlying mortgage loans. If the home-owner defaults on the loan, the pass-through agency
- When mortgages are pooled into securities, the pass-through agency typically guarantee the underlying mortgage loans. If the home-owner defaults on the loan, the pass-through agency makes good on the loan; the investor in the mortgage backed security does not bear the risk. Why does the allocation of risk to the pass-through agency rather than the security holder make economic sense?
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