Collateralized Mortgage Obligation
Definition
CMO. A mortgage-backed, investment-grade bond that separates mortgage pools into different maturity classes. Collateralized mortgage obligations (CMO) are backed by mortgage-backed securities with a fixed maturity. They can eliminate the risks associated with prepayment because each security is divided into maturity classes that are paid off in order. As a result, they yield less than other mortgage-backed securities. The maturity classes are called tranches, and they are differentiated by the type of return. A given tranch may receive interest, principal, or a combination of the two, and may include more complex stipulations. One negative aspect of collateralized mortgage obligations is the lower interest rates that compensate for the reduction in prepayment risk and increased predictability of payments. Also, collateralized mortgage obligations can be quite illiquid, which can increase the cost of buying and selling them.
This content can be found on the following page:
http://www.investorwords.com/932/Collateralized_Mortgage_Obligation.html
email to a friend
 print this definition
 cite this definition
 link to this page
Copy and paste this HTML in your website to link to this page
Related terms:
REMIC, collateralized debt obligation, projected maturity date
'Collateralized Mortgage Obligation' appears in the definitions of these other terms on BusinessDictionary.com:
tranche
Related Research Articles from the InvestorGuide.com University
Advanced Bond Concepts
Learn about callable and non-callable bonds, zero-coupon bonds, secured and unsecured bonds, tax-deferred bonds, put provisions, and other advanced bond concepts.
Municipal Bonds
Learn about the two types of bonds issued by municipal organizations: General Obligation bonds and Revenue bonds, and what the benefits of municipal bonds in general are.
Other Types of Bonds
Find out about bonds issued by mortgage associations, savings bonds, Brady bonds, as well as those issued by other government agencies, and what the advantages and disadvantages of each type are.
|
