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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 to serve as collateral, divided into senior and junior tranches, and the senior tranches are then subdivided into different credit and prepayment risk tranches, in order to meet the specific risk/reward needs of various investors.

Synonym(s): 
  • collateralized mortgage obligation.
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