A Collaterized Mortgage Obligation (CMO) is a mortgage-backed bond secured by a pool of mortgage loans. CMO's separate mortgage pools into different maturity classes called "tranches". The tranches generally pay fixed rates of interest at regular intervals and may mature in two, five, ten, or 20 years. Most CMO's carry a AAA rating and Interest payments to investors are subject to Federal, state, and local taxes. An investor seeking a short-term investment may purchase a two-year tranche, while a longer term investor may purchase a 20-year tranche.
Collaterized Mortgage Obligation (CMO)