What refers to the act of creating securities backed by mortgage loans?

The term that refers to the act of creating securities backed by mortgage loans is known as securitization. This process involves pooling together a group of mortgage loans and then selling them as mortgage-backed securities to investors. Through securitization, lenders can convert illiquid assets, such as mortgage loans, into liquid securities that can be traded in the market. This not only helps to diversify the risk associated with holding individual loans but also provides a source of funding for banks and mortgage lenders to make more loans.

In the context of financing, investing, and capitalization, these terms refer to different aspects of financial activities that do not specifically encompass the process of creating securities. Financing generally deals with obtaining funds or capital for operations, investing refers to the allocation of resources toward assets with the expectation of generating income or profit, and capitalization relates to the structure of a company’s finances, particularly how it funds its operations and growth through debt and equity. Securitization uniquely captures the essence of transforming mortgage assets into tradable securities, thereby making it the correct choice in this scenario.