Collateralised Mortgage Obligation meaning

A collateralised mortgage obligation (CMO) is a form of mortgage-backed security in which a special purpose vehicle (SPV) issues notes that are repaid from interest and principal received on a pool of mortgage loans. Cash flows are allocated under a contractual priority of payments (the waterfall) across classes (tranches), creating different maturities, coupons and levels of subordination/credit enhancement, and managing prepayment and extension risk (for example, PAC and support tranches). The notes are typically secured over the mortgage receivables and related security, are limited‑recourse and non‑petition, and benefit from servicing, trust deed/security trust and agency arrangements. “Collateralised mortgage obligation” is a market term rather than one defined in statute or case law. In the UK and Ireland, CMOs are structured and regulated as securitisations and as securities, engaging the UK Securitisation Regulation (or the EU Securitisation Regulation in Ireland), risk‑retention, transparency and due‑diligence requirements, and, where listed, prospectus and market abuse regimes. Usage is broadly consistent across England & Wales, Scotland, Northern Ireland and Ireland; in Ireland, section 110 TCA companies are commonly used as SPV issuers. CMOs are most frequently seen in residential mortgage-backed securities (RMBS) transactions.