Final answer:
Hypothecation is the process of offering property as security for a loan without giving up possession of it. It is commonly used in mortgage transactions. While securitization has its advantages, it may also lead to the issuance of risky subprime loans.
Step-by-step explanation:
When you offer your property or house for security for a loan without giving up possession of it, it is called hypothecation. This process allows the lender to have a security interest in the property as collateral for the loan, while the borrower retains the right to use and occupy the property. This is a common practice in mortgage transactions, where the bank lends money for the purchase of a home and the home itself serves as collateral for the loan.
Securitization can provide advantages by diversifying financial risks away from local economic conditions and into the broader market. Local banks do not need to maintain large reserves to make loans, as they can sell these loans off and turn them into mortgage-backed securities or other financial instruments. This process, however, may encourage the issuance of subprime loans, characterized by high-risk factors such as low or zero down-payments, minimal scrutiny of borrower income, and low initial payments followed by significantly higher rates.
Answer: c) Hypothecation