Introduction to Collateralized Mortgage Obligations

Mortgage-backed securities, or pass-throughs as they are sometimes called, were designed to offer an investment that has the security of bonds but with a higher yield potential. Unlike bonds, however, you never know when the home mortgages that back pass-throughs might be prepaid, introducing a note of uncertainty to your investment. Collateralized mortgage obligations, or CMOs, are mortgage-backed instruments that aim to make the term of your investment more reliable.