Final answer:
Securitization transforms non-marketable, localized loans into marketable securities, allowing banks to diversify risk and reduce reliance on local economic conditions. It makes credit more accessible to borrowers but can lead to an increase in riskier lending practices.
Step-by-step explanation:
Securitization means that non-marketable assets are pooled and made into marketable assets. The correct answer to the question is b. Non-marketable; marketable.
Securitization allows banks to convert loans, which are typically illiquid and localized, into financial instruments that can be sold on the capital markets. This process helps banks to diversify their risk away from the local economy and ensures that they are not overly exposed to a downturn in the local area. Consequently, the bank's financial health becomes more stable, as it acquires a diversified portfolio of assets from different regions.
For the borrower or homebuyer, securitization facilitates access to credit because banks do not need to keep a large reserve of funds since they plan on selling the loan shortly after it is made. However, this can also lead to lax lending practices and an increase in subprime loans, as banks might issue loans to less qualified borrowers with the intention of selling these loans quickly in the securitization market.