Collateralized Mortgage Obligation (CMO)

A collateralized mortgage obligation (CMO) is a type of debt instrument made up of a pool of mortgage debt.

Because mortgages are secured by property, CMOs are collateralized, meaning there are physical assets backing the debt. As mortgagors pay off their mortgages, holders of corresponding CMOs receive principal payments.

CMOs are typically made up of multiple tranches, each of which are normally rated according to the level of risk they carry.

See also: Active tranche, Z-Tranch, Accretion Directed Bond

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