Investors in residential mortgage loans face four main risks
credit risk
liquidity risk
price risk
prepayment risk
a. Specify these risk categories
b Describe the credit risk and explain how it can be measured.
c Describe the liquidity risk. How has securitization changed liquidity of the mortgages?
d Describe the price risk. How does monetary policy affect price risk?
e Discuss the pre-payment risk. Should investors in mortgages be concerned about this risk? Why?