Florida Association of Realtors: Sudip Datta on why many mortgage lenders have a ‘junk’ bond rating

Credit rating agencies are tasked with evaluating the financial health of companies and governments and the riskiness of specific bonds and securities. Companies with junk ratings typically must pay higher interest rates to borrow money than those with investment-grade ratings. That premium reflects the added risk that investors take when lending to such firms, said Sudip Datta, finance department chair at Wayne State University's Mike Ilitch School of Business. Some investors like junk bonds because they want the higher yield. "The rating tells investors that this is a junk-bond category, so be careful, but if you want to have higher returns, take the risk," Datta said.

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