Collateralized Mortgage Obligations (CMOs)
CMOs are highly risky debt instruments backed by a pool of mortgage pass-through securities or mortgage loans. All retail communications and correspondence concerning CMOs:
- 1. must include in the name of the offered product the term “Collateralized Mortgage Obligation”
- 2. may not compare CMOs to any other investment vehicle
- 3. must disclose that a government agency backing applies only to the face value of the CMO and not to any premium paid
- 4. must disclose that a CMO’s yield and average life will fluctuate depending on the actual rate at which mortgage holders prepay the mortgag
