Collateralized Mortgage Obligation
Collateralized Mortgage Obligation
Collateralized mortgage obligation is a type of financial debt vehicle that was first appoint in 1983 which is investment banks Salomon Brothers and First Boston for U.S. mortgage lender Freddie Mac. The performance of these investments depends on the character of the home mortgages on which they’re based. Traditional lenders package these loans and pass them on to an intermediate company.
Principal and interest payments from homeowners are finally passed on to investors in the CMO. Collateralized mortgage obligation is classed allow to expected maturity ranges at the time of issue. The greater certainty of payment size is beginning by marginally lower yields equate with average pass by.
Collateralized mortgage obligation are often extremely sensitive to changes in interest rates and any resulting modification in the rate at which homeowners sell their properties, refinance, or otherwise pre-pay their loans. Investors in these securities may not only be submitting to this prepayment risk, but also exposed to significant market and liquid risks.
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