Final answer:
Securitization changes the risk profile of the bank's assets; it cuts local financial risks but may lead to riskier subprime loans like the infamous NINJA loans.
Step-by-step explanation:
Securitization allows the creation of tradable securities with different risk profiles than the original loans on the bank's balance sheet. This process can enable a bank to divest local loans that make it vulnerable to local economic downturns, and instead, invest in mortgage-backed securities that are diversified across different regions, thereby reducing exposure to local financial risks.
However, it also introduces the potential disadvantage of banks being inclined to issue subprime loans, with less scrutiny of the borrower's ability to repay. These subprime loans, sometimes referred to as NINJA loans, present a higher risk as they are given to borrowers with no income, no job, or assets.