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Collateralized Mortgage Obligation - CMO

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Collateralized Mortgage Obligation - CMO
An asset-backed security backed by mortgages. Banks package and sell their receivables on mortgages to investors in order to reduce the risk coming from defaults. Returns on CMOs are paid in tranches; that is, an individual mortgages backing CMOs have different maturities and investors are paid out according to their level of investment. Banks offer higher interest rates to investors willing to buy CMOs backed by higher-risk mortgages, such as subprime mortgages. See also: Collateralized loan obligation.


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