Collateralized mortgage obligations (CMOs)offset some of the problems associated with traditional mortgage pass-throughs because
A) They are overcollateralized.
B) They have variable rates.
C) Collateralized by auto-loans.
D) They are deep discount instruments.
E) Collateralized by credit card debt.

Question

Quizplus · Accepted Answer

Collateralized mortgage obligations (CMOs) are overcollateralized, meaning that the value of the underlying assets supporting the security is greater than the value of the actual security. This reduces the risk of default and provides some protection for investors. The other choices listed are not characteristics typically associated with CMOs.

Collateralized Mortgage Obligations (CMOs)offset Some of the Problems Associated with Traditional