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Collateralized Mortgage Obligations

Collateralized Mortgage Obligations (CMOs) are bonds backed by large collectives of home mortgages.

They are a bit complicated.  And, they are very sensitive to interest rates, the housing market, and the general state of the economy.

CMOs are best considered as a long term investments (10-15 years). They aren’t suitable investment for investors looking for something short term.

Investment in CMOs got blamed for a lot of the financial crisis of 2007 – 2008. People gained a lot during the real estate boom years in the early 2000s. When the housing market crashed, so did their investment accounts.

CMOs are risky.  If you think about it, you are ultimately investing in the probability of people paying their mortgages over the term of their mortgage loans.  If the economy is such that people are having a hard time meeting their obligations, The market will drop.  At that time, you will lose money investing in CMOs.