Collateralized Mortgage Obligation (CMO)

Definition of "Collateralized Mortgage Obligation (CMO)"

David Landsman Coldwell Banker

Mortgage-backed, pass-through securities that segregates mortgage pools into short, medium, and long-term. CMOs arose because GNMA or FHLMC mortgage-backed securities have uncertain time periods because of the possibility of prepayment of the principal balance on the mortgages. By separating mortgage pools into different time periods, investors now can buy shares in short-term or long-term pools. See also mortgage-backed securities.