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What Are Collateralized Mortgage Obligations? How Do They Work?

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The Street

By TheStreet.com Staff What Are Collateralized Mortgage Obligations?Collateralized Mortgage Obligations, or CMOs, are a type ofmortgage-backed security. Thousands of individual mortgages are pooled together into classes, or tranches, and categorized by their risk level. CMOs are one way for traders to invest in residential mortgage loans, and they typically offer higher yields than Treasury securities. CMOs are traded on secondary markets—and we’ll discuss more about how to purchase them below. It’s important to note that because CMOs depend on the cash flows generated by their underlying asse…

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