CMO Investing - CMO Bonds, Basics and Bonds

A Collateralized Mortgage Obligation (“CMO” or “REMIC”) is a series of bonds, backed by a pool of US Agency issued Mortgage-Backed (MBS). CMO’s have many of the same characteristics as Mortgage Pass-Though Securities including the safety of U.S. Government assurances and a AAA rating, the liquidity of an active secondary market, a yield significantly higher than comparable government securities, and monthly cash flows. However, CMO’s have three distinct advantages over “traditional” Mortgage- Backed Securities:

1. CMO’s offer more stable and predictable cash flows 2. CMO’s offer a choice of principal repayment schedules as principal payments beginning immediately, or principal payments deferred) 3. C MO’s offer a choice of maturities; short, intermediate, or long term.

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