Recall that securitization is the process of turning a loan, such as a mortgage, into a bond that can be bought and sold in secondary markets. An article in the Economist notes:
That securitization caused more subprime mortgages to be written is not in doubt. By offering access to a much deeper pool of capital, securitization helped to bring down the cost of mortgages and made home-ownership more affordable for borrowers with poor credit histories.
What is a "subprime mortgage"? What is a "deeper pool of capital"? Why would securitization give mortgage borrowers access to a deeper pool of capital? Would a subprime borrower be likely to pay a higher or a lower interest rate than a borrower with a better credit history? Under what circumstances might a lender prefer to loan money to a borrower with a poor credit history rather than to a borrower with a good credit history? Briefly explain.