Collateralized-mortgage-obligation Definition

A security that is backed by real estate. Payments on CMO obligations are paid using interest and principal payments from a pool of mortgages that have many different coupon rates, final maturities, and prepayment schedules. The term CMO usually indicates that the issuer is not a governmental issuer, such as Fannie Mae. Payments to the bondholders are pass-through payments from the homeowners, consisting of both principal and interest payments. CMOs are subject to early retirement if the mortgage is prepaid or if the mortgage is refinanced. CMOs were first introduced in 1983; since then, issuance has exceeded $1 trillion. They have since been replaced by Real Estate Mortgage Investment Conduits (REMICs), with nearly all types of CMOs issued in the form of a REMIC, though the terms are used interchangeably.
Webster's New World Finance

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