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The Handbook of Mortgage-Backed Securities7th Edition$
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Frank J. Fabozzi

Print publication date: 2016

Print ISBN-13: 9780198785774

Published to Oxford Scholarship Online: October 2016

DOI: 10.1093/acprof:oso/9780198785774.001.0001

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Agency Collateralized Mortgage Obligations

Agency Collateralized Mortgage Obligations

(p.273) Chapter 12 Agency Collateralized Mortgage Obligations
The Handbook of Mortgage-Backed Securities

Frank J. Fabozzi

Oxford University Press

This chapter provides an overview of the different types of agency collateralized mortgage obligations (CMOs). Unlike agency passthrough securities, which have only one bond class, agency CMOs have multiple bond classes that are supported by the collateral. Agency CMOs are issued by the same entities that issue agency passthrough securities—Ginnie Mae, Fannie Mae, and Freddie Mac—and carry the credit risk of those issuers. Although non-agency or private-label CMOs also have multiple bond classes, the bond classes are divided into senior and several levels of subordinated bond classes. The subordinated bond classes provide credit protection for the senior bond classes. By redirecting the principal (regularly scheduled and prepayments) to bond classes, securities can be created with a different average life than the collateral as well as different degrees of average life variability.

Keywords:   agency collateralized mortgage obligations, CMOs, bond classes, credit risk, agency passthrough securities, credit protection, average life variability

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