Collateralized Mortgage Obligations (CMOs) are a high-risk type of mortgage-backed bonds
By: Libi Uremovic| Original Article at Patch.com
Collateralized Mortgage Obligations (CMOs) are a high-risk type of mortgage-backed bonds. A review of Beaumont Bond Fund Accounts reveal that all of the City’s Bonds are CMO’s. The CMO’s can be found in the first set of each bond’s account numbers listed under the Program Fund.
Beaumont Bonds have no credit rating and are never sold, which begs the question; where does the money go?
In 2015 Beaumont will pay $6,375,000 in Premium payments. This money will be used to retire the bonds located in the bond fund accounts.
But Beaumont will also pay $15.3 Million in Interest payments. Traditionally, the interest payments go to the holders of the bonds, but when the bonds are held in the bond fund account who pockets the interest payment?
From SEC website: http://www.sec.gov/answers/tcmos.htm
Collateralized Mortgage Obligations (CMOs)
Collateralized mortgage obligations (CMOs), a type of mortgage-backed security, are bonds that represent claims to specific cash flows from large pools of home mortgages. The streams of principal and interest payments on the mortgages are distributed to the different classes of CMO interests, known as tranches, according to a complicated deal structure. Each tranche may have different principal balances, coupon rates, prepayment risks, and maturity dates (ranging from a few months to twenty years).
CMOs are often highly sensitive to changes in interest rates and any resulting change in the rate at which homeowners sell their properties, refinance, or otherwise pre-pay their loans. Investors in these securities may not only be subjected to this prepayment risk, but also exposed to significant market and liquidity risks.
You can learn more about CMOs by visiting the website of the Securities Industry and Financial Markets Association.