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CMO (Collateralized Mortgage Obligation) |
| A structured mortgage-backed security designed to offer investors various payment schedules, a wide range of maturities, and protection from the risks associated with the unpredictable cash flow from pools of mortgage loans. CMO structures redirect cash flows from the underlying mortgage collateral to various classes of bonds, called tranches, with differing average lives. The monthly principal payments from the underlying mortgages are combined to retire each tranche sequentially. When the shortest maturity tranche is completely paid down, principal payments are shifted to the next shortest maturity tranche. This process continues until all of the tranches are retired. |