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What does collateral mortgage obligation mean?

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collateral mortgage obligation
(CMO)
Noun


A pay-through security for which pass-through mortgage-backed securities (MBSs) or mortgage loans are grouped together in a pool that serves as collateral and subdivided into multiple tranches with different credit and prepayment risk in order to meet the specific risk/reward needs of various investors.

Synonym(s): 
  • collateralized mortgage obligation.
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