Final answer:
The mortgagor conveys their interest in the property to a trustee under a deed of trust. This is different from a traditional mortgage and involves a trustee who holds legal title for security. The question also alludes to the risks associated with securitization, such as less careful lending practices and an increase in subprime loans.
Step-by-step explanation:
Under a deed of trust, the mortgagor conveys his or her interest in the property to a disinterested third party, known as a trustee. This arrangement is used in some states as an alternative to a traditional mortgage and involves three parties: the borrower (mortgagor), the lender (beneficiary), and the trustee. The trustee holds the legal title to the property as security for the loan and can sell the property if the borrower defaults on the loan terms, through a process known as foreclosure.
Securitization, while a helpful tool for financial institutions to distribute risk, also carries the risk of incentivizing banks to be less scrutinizing when making loans. This can lead to an increase in subprime loans, which carry higher risk due to factors such as low down-payments and minimal income verification. The term NINJA loans was coined to describe particularly risky subprime loans granted to borrowers with No Income, No Job, or Assets.