Collateralized Mortgage Obligation (CMO)

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Collateralized Mortgage Obligation also known as CMO is a structure that is based on risk. The first CMO was in 1983 for Freddie Mac was by Salomon Brothers and First Boston (banks). According to the Investopedia, “A collateralized mortgage obligation is a special purpose entity that receives the mortgage repayments and owns the mortgages it receives cash flows from (called a pool). The mortgages serve as collateral, and are organized into classes based on their risk profile. Income received from the mortgages is passed to investors based on a predetermined set of rules, and investors receive money based on the specific slice of mortgages invested in (called a tranche).” Tranches are created when mortgage loans from an institution such as
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