COLLATERALIZED MORTGAGE OBLIGATION - CMO
Mortgage-backed security where principal repayments are organized based on its maturities and grouped into classes according to its risk profile. Serving as collateral, this special purpose entity can eliminate the risks connected to repayment since every security is divided into maturity classes paid off in order. Therefore, CMOs yield less than other types of mortgaged-backed securities. Income received from these is given to investors according to a preset rules, and investors receive money based on the tranche.
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