In several states of the United States, a nonrecourse mortgage allowed the lender only to take possession of the borrower’s home; not their other assets. In other words, this allowed borrowers to own an American-style put option on homes, so when the housing prices fell, the borrowers sold their homes to the lender for the principal outstanding on the mortgage.

Option A is incorrect: A teaser rate is referred to as a very low rate that is offered in the initial two to three years of the mortgage before significant increases in rates in the subsequent years.

Option B is incorrect: Ninja borrowers refer to the category of borrowers without a regular source of income, livelihood, and no assets to serve as mortgage security.

Option D is incorrect: Securitization involves repackaging loans and other assets into new securities that can then be sold in the securities markets.