Final answer:
It is true that financial institutions originate, finance, and close mortgages, often selling them to large investors. This process, known as securitization, was common before the 2008–2009 financial crisis and contributed to the spread of risky lending practices.
Step-by-step explanation:
A company or institution that originates, finances, and closes mortgages, generally selling them to large investors in the secondary market, is indeed true. This process is widely recognized as part of the financial industry's approach to managing and distributing the risk of mortgage lending.
During the housing boom leading up to the 2008–2009 financial crisis, securitization became a common practice. Lending institutions, including banks, would create mortgage-backed securities by pooling mortgages and selling them as bonds or other financial products. Investors were attracted to these mortgage-backed securities due to their potential for a steady return, assuming that the underlying mortgages were repaid.
In theory, securitization allowed banks to offload the risk of default. However, it did lead to less stringent lending practices, as the initial lenders no longer faced the financial repercussions if borrowers defaulted. Over time, this contributed to the proliferation of subprime loans and ultimately to the subprime mortgage crisis, as housing prices stopped rising and many borrowers found themselves unable to meet their mortgage obligations.