Series 66: Collateralized Mortgage Obligations

Collateralized Mortgage Obligations

Collateralized mortgage obligations (CMOs) are another type of asset-backed security. CMOs are pass-through securities that are issued by a GSE or a private sector financing corporation and are often backed by Fannie Mae, Freddie Mac, and Ginnie Mae. They often are rated AAA.

Unlike a traditional MBS that has one coupon rate and maturity date, a CMO offers a range of coupon rates and maturity dates for investors to choose from. The monthly payments from the CMO will be a combination of varying amounts of both interest and principal. Therefore, the CMO investor’s principal is returned over the life of the security rather than repaid in a single lump sum at maturity