Collateralized Mortgage Obligation (CMO)

Business / Taxes / 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.

Other Words for Obligation

Obligation Noun Synonyms: responsibility, duty, charge, burden, onus, accountability, liability, trust, demand, requirement, compulsion, devoir
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Mortgage-Backed Security (MBS)

Business / Real Estate / Mortgage-Backed Security (MBS): A security guaranteed by pools of mortgages and used to channel funds from securities markets to housing markets. Ginnie Mae has a popular MBS program recognized for its low risk and high yield. The G MORE

Mortgagee

Business / Construction / Mortgagee: The lender who makes the mortgage loan. MORE

Mortgage-Backed Security

Business / Taxes / Mortgage-Backed Security: Mortgage-backed securities are created when the sponsor buys up mortgages from lenders, pools them, and packages them for sale to the public, a process known as securitization. The securities are avai MORE

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