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For more risky pooled loan, the banks offered credit ratings and even bond insurance. The riskier loans had a higher return on investment, coupled with bond insurance made them an appealing investment to investors. The pooling hid fair market value from the investors and true value was never accurately reflected on the financial statements. The true value was estimated at the original value a conscience decision made by the accounting profession. The failure of conservatism on the financial statement made it difficult for the investor to make an informed decision. (Walters, P. D., PhD, CFA. (May 2008))
When the loans were secured the banks would transfer, not sell, the loans to another entity that was responsible for collection of the debt...
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