CMO

collateralized mortgage obligation (CMO)

A type of MBS created by dividing the rights to receive the principal and interest cash flows from an underlying pool of mortgages into separate classes or tiers. The tiers or classes are usually called tranches. In other words, it is a multiclass bond backed or collateralized by mortgage loans or mortgage pass-through securities. A given tranche is typically not redeemed until all bonds with earlier priority have been redeemed. By dividing the cash flows into one or more tranches with shorter terms, the risk resulting from the potential volatility from future changes in prevailing rates is shifted away from the shorter-term tranche or tranches and onto the longer-term tranches and the residual tranche. American Banker Glossary

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See: collateralized mortgage obligation

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Central Moneymarkets Office Euroclear Clearing and Settlement glossary

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collateralised mortgage obligations (CMO)

CMOs package the mortgage payment stream from a portfolio of mortgages into several series of debt instruments which are prioritised in terms of their right to receive principal payments. In the most basic CMOs, each series must be repaid in full before any principal payments can be made to the holders of the next series. Exchange Handbook Glossary

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CMO CMO

BANKING abbreviation for collateralized

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   Collateralized Mortgage Obligations.

   A security sold to investors with collateral based on property mortgages. Cash flows from mortgages, and their maturity dates, vary widely. If they are pooled and CMOs are issued against their collective value, it becomes possible to calculate an overall cash flow and make predictable payments of interest.

   ► See also Securitization.