Answer:
Collateralize mortgage obligation (CMO) is a multifaceted debt security that directs the principal payments and interest payments from a mixed pool to different securities in order to satisfy the needs of an investor.
From the excel workbook on the provided website the return on the residual class are as below:
At a prepayment rate of 15%.
Hence, the return is
at a prepayment rate of 15%.
At a prepayment rate of 20%.
Hence, the return is
at a prepayment rate of 20%.
At a prepayment rate of 25%.
Hence, the return is
at a prepayment rate of 25%.
At a prepayment rate of 30%.
Hence, the return is
at a prepayment rate of 30%.
Answer:
Collateral mortgage obligation
Collateral mortgage obligation is bond security that is issued by backed by pool of different mortgages. Unlike the other principle mortgage security Collateral mortgage obligation is also backed by pool of mortgages. Level of risk in Collateral mortgage obligation is minimal compared to other type of mortgage backed security.
Major difference between Collateral mortgage obligation and other type of mortgage security is that Collateral mortgage obligation is issued in multiple classes against the similar pool of mortgagee.
Collateral mortgage obligation can have multiple maturity periods which is based on issuer as well as investors need. By issuing surety with different class and different maturity period the issuer can easily able to manage the cash flow and payment in Collateral mortgage obligation security.
Answer:
Over collateralization means the pools of mortgages are more than the amount of securities issued against it. The mortgage pay through bonds (MPTBs) is issued against the mortgage pools and the cash flows from the pool are passed through to security holders.
Most of the pay through issues and mortgaged backed bonds are over collateralized since they are based on residential pools. The over collateralization are same in both the cases in the sense that (i) more mortgages in the pool than the sum of the securities issued against it. (ii) Additional collaterals in the form of U.S. government bonds or any other obligations from different agencies.