collateralized mortgage obligation (CMO)

collateralized mortgage obligation (CMO)

A security collateralized with mortgage loans and issued by Freddie Mac. Although collateralized in a manner similar to a Freddie Mac pass through, a CMO provides interest and principal payments in a more predictable manner. CMOs are classed according to expected maturity ranges at the time of issue. The greater certainty of payment size is offset by slightly lower yields compared with ordinary pass throughs. Compare collateralized bond obligation. See also planned amortization class (PAC), targeted amortization class bond (TAC bond), Z-tranche.