collateralized mortgage obligations (CMO)

Collateralized Mortgage Obligations (CMOs) are financial instruments that pool together numerous home mortgages. They are then divided into different sections, or "tranches," which cater to various investor preferences regarding risk and return. Each tranche receives mortgage payments in a specific order—typically, the safest one gets paid first, while riskier tranches might offer higher returns but are paid later. This structure helps manage risk and provides investors with more options based on their financial goals. CMOs are used to enhance liquidity in the housing market and can be a part of investment portfolios.