Comments on: What is the difference between Collateralized Mortgage Obligations and other mortgage backed securities? http://www.discountmortgage.org/2009/03/13/what-is-the-difference-between-collateralized-mortgage-obligations-and-other-mortgage-backed-securities/ Find Best Interest rates loans and financing Wed, 06 May 2009 23:27:57 -0500 http://wordpress.org/?v=2.8.2 hourly 1 By: Ranto http://www.discountmortgage.org/2009/03/13/what-is-the-difference-between-collateralized-mortgage-obligations-and-other-mortgage-backed-securities/comment-page-1/#comment-9722 Ranto Mon, 16 Mar 2009 00:01:05 +0000 http://www.discountmortgage.org/2009/03/13/what-is-the-difference-between-collateralized-mortgage-obligations-and-other-mortgage-backed-securities/#comment-9722 <a href=""><a href="http://realtyexecutivesdillon.com/carmel_valley_real_estate.htm">Carmel Valley Real Estate</a></a> The original MBS were pass-through MBS -- where the cash flows (principal plus interest) were passed through to the investors -- except for a small piece of the interest that is taken out for servicing. Investors didn't like the prepayment risks. In the mid-1980s, Dexter Senft -- then the head of Fixed Income Research at First Boston -- came up with the idea for CMOs. With a CMO, the cash flows of the MBS are filtered into several different bonds -- each having a different risk profile. These were called Tranches or Classes. Some tranches had very little prepayment risk -- while others had a lot. The idea was that by breaking the cash flows into several tranches, it would allow investors to buy pieces that fit their risk profile. Carmel Valley Real Estate

The original MBS were pass-through MBS — where the cash flows (principal plus interest) were passed through to the investors — except for a small piece of the interest that is taken out for servicing. Investors didn’t like the prepayment risks.

In the mid-1980s, Dexter Senft — then the head of Fixed Income Research at First Boston — came up with the idea for CMOs. With a CMO, the cash flows of the MBS are filtered into several different bonds — each having a different risk profile. These were called Tranches or Classes. Some tranches had very little prepayment risk — while others had a lot. The idea was that by breaking the cash flows into several tranches, it would allow investors to buy pieces that fit their risk profile.

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