Final answer:
Securitizing the process of pooling mortgages into standardized mortgage-backed securities (MBS) which are then traded as financial instruments. These MBS played a substantial role in the 2008-2009 financial crisis due to lenient credit rating assessments and lack of regulatory intervention.
Step-by-step explanation:
Pooling mortgages into standardized instruments backed by those mortgages is known as securitizing. Through securitization, lenders sell mortgages to financial companies, which then create a pool of these loans. This pool is used to create large financial securities, known as mortgage-backed securities (MBS), that are subsequently sold to investors. The investors then receive income from the securities based on the mortgage payments made by borrowers. As housing prices continued to climb, the process seemed sensible to borrowers, and it allowed lenders to off-load the risks associated with the mortgages to investors. However, investors depended heavily on credit rating agencies to assess the risk associated with these MBS, and the agencies were criticized for being too lenient in their evaluations. The lack of intervention by bank and financial regulators contributed to the unchecked growth in the market for mortgage-backed securities, which ultimately played a significant role in the 2008-2009 financial crisis.