Early prepayments on mortgages backing a CMO are normally allocated to the earliest existing tranche maturity.

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Early prepayments on mortgages backing a CMO are normally allocated to the earliest existing tranche maturity according to the waterfall structure of the CMO. This ensures that investors in the earlier tranches receive their principal payments first, while investors in the later tranches bear more of the prepayment risk.

Early Prepayments on Mortgages Backing a CMO Are Normally Allocated