Collateralized Mortgage Obligations (CMOs)

Which of the following is _least likely_ an attribute of a collateralized mortgage obligation (CMO)?

Correct. The CMO does not eliminate prepayment risk. Instead of the mortgage pass through structure where all investors have a proportional access to payments from the underlying residential mortgages, payments flow to different types of investors through different bond classes.

Incorrect. This is accurate. Cash flows are distributed to various types of investors based on risk objectives and return requirements.

Incorrect. This is a true observation. The CMO is backed by mortgage pass through securities which were formed by pooling residential mortgages and securitizing them.

Eliminates principal prepayment risk

Redistributes mortgages' cash flow payments

Collateral is mortgage pass through securities