What is the process called where loans are bought on the secondary market, pooled, and sold as securities?

The process where loans are bought on the secondary market, pooled, and then sold as securities is known as securitization. This involves bundling various types of loans, such as mortgages, into a single investment product that can be sold to investors. Securitization enhances liquidity in the market, as it allows lenders to refinance their portfolios and provide more loans to borrowers. Investors receive payments from the cash flow generated by the underlying loans, which can include principal and interest payments.

Amortization refers to the gradual repayment of a loan over time through scheduled payments, primarily consisting of both principal and interest. Collateralization involves securing a loan with specific assets to reduce the risk for the lender, ensuring that if the borrower defaults, the lender can claim the collateral. Underwriting is the process of evaluating the risk of insuring a loan or underwriting a mortgage, which includes assessing borrower qualifications and property value. While these terms relate to aspects of the lending process, they do not pertain to the mechanism of pooling and selling loans as securities, which is distinctly defined as securitization.