Word: tranchesã
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...mortgage, the broker then sells off this debt to investment banks, which collect mortgages in bulk, securitizing them as collateralized debt obligations (CDOs). These CDOs are packages of mortgage-backed bonds, securitized from pieces of mortgages. As such, they can contain varying qualities of mortgages, despite tranches??€”or divisions of CDOs—that are intended to rank based on risk. Rating agencies are also to blame, because they facilitate the bank’s sale of securities to institutional investors. Many funds are restricted to buying only the highest quality securities with a AAA rating. This motivates...
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