Series 24: Collateralized Mortgage Obligations (CMOs)

Collateralized Mortgage Obligations (CMOs)

CMOs are highly risky debt instruments backed by a pool of mortgage pass-through securities or mortgage loans. All retail communications and correspondence concerning CMOs:

1. 1. must include in the name of the offered product the term “Collateralized Mortgage Obligation”
2. 2. may not compare CMOs to any other investment vehicle
3. 3. must disclose that a government agency backing applies only to the face value of the CMO and not to any premium paid
4. 4. must disclose that a CMO’s yield and average life will fluctuate depending on the actual rate at which mortgage holders prepay the mortgag