The definition of CMO can be found in the Free Dictionary. What does CMO stand for?Contract manufacturing organization?

A mortgage obligation is a type of mortgage-backed security that has a pool of mortgages bundled together and sold as an investment.The cash flows that CMOs receive are organized by maturity and level of risk.CMOs distribute principal and interest payments to their investors based on rules and agreements.

The mortgages are organized by their risk profiles.Different principal balances, interest rates, and maturity dates can be found in complex financial instruments.Mortgage obligations are sensitive to interest rate changes, as well as to changes in economic conditions, such as foreclosures, and the rates at which properties are sold.Each piece has a different maturity date and size and bonds with monthly coupons are issued against it.Monthly principal and interest rate payments are made by the coupon.

An investor has a CMO made up of thousands of mortgages.His potential for profit depends on whether the mortgage holders repay their loans.The investor gets his principal and interest back if only a few homeowners default on their loans.If thousands of people cannot make their mortgage payments, the CMO loses money and cannot pay the investor.

Real Estate Mortgage Investment Conduits (REMICs), also known as CMOs, allow investors to get access to mortgage cash flows without having to originate or purchase a set of mortgages.

A group of loans are bundled together and sold as an investment vehicle.Car loans, credit cards, commercial loans and even mortgages are included in the range of loans in CDOs.After the global financial crisis, the values of both CDOs and CMOs plummeted.At its peak in 2007, the CDO market was worth over a trillion dollars.

CMOs were issued by First Boston and Salomon Brothers.The health of underlying mortgages was more important to investors than the income streams offered by CMOs.Mortgages with high risks of default, as well as mortgages held by borrowers whose income wasn't verified during the application process, were purchased by many investors.

The financial crisis was caused by the use of CMOs.Market and economic conditions led to a rise in foreclosures and payment risks that financial models did not accurately predict, despite the fact that rising housing prices made mortgages look like fail-proof investments.Increased regulations for mortgage-backed securities were caused by the global financial crisis.In December of 2016 the SEC and FINRA introduced new regulations that mitigate the risk of these securities by creating margin requirements for covered agency transactions.