Collateralized Mortgage Obligation - CMO
Definition of 'Collateralized Mortgage Obligation - CMO'A type of mortgage-backed security that creates separate pools of pass-through rates for different classes of bondholders with varying maturities, called tranches. The repayments from the pool of pass-through securities are used to retire the bonds in the order specified by the bonds' prospectus. |
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Investopedia explains 'Collateralized Mortgage Obligation - CMO'Here is an example how a very simple CMO works: The investors in the CMO are divided up into three classes. They are called either class A, B or C investors. Each class differs in the order they receive principal payments, but receives interest payments as long as it is not completely paid off. Class A investors are paid out first with prepayments and repayments until they are paid off. Then class B investors are paid off, followed by class C investors. In a situation like this, class A investors bear most of the prepayment risk, while class C investors bear the least. |
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Related Definitions
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Sequential Growth
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Dodd-Frank Financial Regulatory Reform Bill
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Real Estate Mortgage Investment Conduit - ...
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Collateralized Debt Obligation - CDO
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Commercial Mortgage-Backed Securities (CMBS)
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Mortgage-Backed Security (MBS)
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Net Interest Margin Securities - NIMS
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Z-Tranche
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Sequential Pay CMO
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Planned Amortization Class (PAC) Tranche
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