collateralized mortgage obligation

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Collateralized mortgage obligation (CMO)

A security backed by a pool of pass-through rates, structured so that there are several classes of bondholders with varying maturities, called tranches. The principal payments from the underlying pool of pass-through securities are used to retire the bonds on a priority basis as specified in the prospectus. Related: mortgage pass-through security.

Collateralized Mortgage Obligation

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.

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, targeted amortization class bond, Z-tranche.

Collateralized mortgage obligation (CMO).

CMOs are fixed-income investments backed by mortgages or pools of mortgages.

A conventional mortgage-backed security has a single interest rate and maturity date. In contrast, the pool of mortgages in a CMO is divided into four tranches, each with a different interest rate and term.

Owners of the first three tranches receive regular interest payments and principal is repaid to reflect the order in which the tranches mature. The fourth tranche is usually a deep-discount zero coupon bond on which interest accrues until maturity, when the full face value is repaid.

CMOs usually involve high-quality mortgages or those guaranteed by the government. Their yield may be lower than those of other mortgage-backed investments.

However, the way in which they are repaid makes them especially attractive to institutional investors including insurance companies and pension funds.

The risk, as with all mortgage-backed securities, is that a change in interest rates can affect the rate of repayment and the market value of the CMO.

collateralized mortgage obligation (CMO)

A security or bond backed (collateralized) by a pool of mortgages.The issuer of the security segmented the cash flow in such a manner that it could create bonds with maturities at differing dates and appeal to a broad spectrum of investors.Today,the CMO has largely been replaced by the REMIC—real estate mortgage investment conduit—although the terms are often used interchangeably.

References in periodicals archive ?
Excluding the impact of the changes in accounting methodology to the interest method for residential mortgage-backed securities and collateralized mortgage obligations, net interest income would have increased by $2.3 million, which was attributable to higher average balances of loans and leases and interest bearing cash.The Company's net interest margin was 4.09% for the third quarter of 2018, up 20 basis points from 3.89% for the second quarter of 2018.
Its portfolio includes corporate bonds, the United States Government obligations, commercial mortgage-backed securities (CMBS), asset-backed securities, short-term investments, collateralized mortgage obligations and foreign government obligations.
AGNC Investment is an internally managed real estate investment trust that invests primarily in agency pass-through securities and collateralized mortgage obligations for which the principal and interest payments are guaranteed by a US government agency or a US government-sponsored entity.
Issuance of mortgage-related securities, including agency and nonagency passthroughs and collateralized mortgage obligations, totaled $326.3 billion in the first quarter.
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At the same time, giant financial institutions turned all those real estate transactions into wildly complex "investments" like CMOs (collateralized mortgage obligations) and then borrowed billions of dollars to invest in them.
The securities, called collateralized mortgage obligations, are backed by junk-rated mortgages, and were held by the NY Fed in the Maiden Lane III facility.
In the same way, we are also expecting Simon to provide us with additional knowledge and expertise particularly on the Collateralized Mortgage Obligations trading, which will remain to be a crucial area for Residential Mortgage-Backed Securities financing as other resources continued to be controlled,” added Pacey.
Principals at Prime Institutional Group and officers at two insurance carriers review what it takes to develop a successful strategy that includes allocations in collateralized mortgage obligations.
The LUA requires the credit union to take several steps to correct its problems, including several outside analyses, including one of its collateralized mortgage obligations. The credit union has three private label CMOs that have been "downgraded below permissible levels."
This is a serious limitation because many securities, such as mortgages and collateralized mortgage obligations, distribute principal value over time.

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