Collateralized Debt Obligations (CDOs) and Collateralized Mortgage Obligations (CMOs)
Collateralized Debt Obligations (CDOs) and Collateralized Mortgage Obligations (CMOs) are structured asset-backed securities (ABS) whose values and payments are derived from the cash flows (interest and principal payments) received by portfolios or pools of underlying fixed-income assets.
Asset-Backed Securities
While CMOs consist of pools of mortgage loans, CDOs do not specialize in one type of debt and can be pools of credit card debit, auto loans, airplane leases, other equipment leases and other types of loans and debt. The mortgages, credit card debt, auto loans and other fixed-income assets serve as collateral for the CMOs and CDOs.
Did your stock broker or brokerage firm mislead you regarding the risk involved in investing in CDOs or CMOs? Contact us at Dimond Kaplan & Rothstein, P.A., to schedule a consultation to learn how our lawyers may be able to help you recover your losses.
The streams of principal and interest payments on the mortgages held in a CMO or other fixed-income assets held in CDOs are distributed to the different classes of CMO and CDO interests, known as tranches. Each tranche may have different principal balances, coupon rates, prepayment risks, and maturity dates.
The more "senior" tranches receive payments of interest and principal first, and are considered the safest tranches. The more junior tranches are subordinate to the senior tranches, and receive their interest and principal payments only after the senior tranches receive their payments and only if additional money is left to make payments to the junior tranches.
Did Your Brokerage Firm Sell You Excessively Risky Financial Products?
As such, the junior tranches are much more risky than the senior tranches. Unfortunately, brokerage firms often sold the risky junior tranches to retail investors who could least afford the risk.
CDOs and CMOs can be highly sensitive to interest rate changes and any resulting changes in the rate at which the homeowners or debtors refinance their debt or pre-pay their debt. These securities also can be highly illiquid, meaning they can be very hard to sell. Finally, CDOs and CMOs often are so complex that investors have no way of knowing what assets actually serve as collateral for the securities.
Did Your Bank or Brokerage Firm Misrepresent Risk?
Investors often rely on the trust of the bank or brokerage firm selling the CDO or CMO. Unfortunately, banks and brokerage firms often misrepresented the level of risk associated with CDOs and CMOs, and many investors who thought they were investing in a safe security have lost most or all of their money.
Did your bank load up your investment portfolio with weak, risky and unsuitable products such as CDOs and CMOs? You may be able to recover some or all of your investment losses through securities litigation or securities arbitration. Contact Dimond Kaplan & Rothstein, P.A., to schedule a consultation with a Miami CDOs lawyer. Our AV-rated* securities fraud law firm, based in New York City, Los Angeles, Miami and West Palm Beach, also serves clients in Fort Lauderdale and other locations throughout Florida, the U.S. and the world.
*CV, BV, and AV are registered certification marks of Reed Elsevier Properties Inc., used in accordance with the Martindale-Hubbell certification procedures, standards, and policies. Martindale-Hubbell is the facilitator of a peer review rating process. Ratings reflect the confidential opinions of members of the Bar and the judiciary. Martindale-Hubbell ratings fall into two categories - legal ability and general ethical standards.
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