What is the difference between a cmo and a remic

Table of Contents Expand. REMIC vs. Key Takeaways A real estate mortgage investment conduit REMIC is a special purpose vehicle that is used to pool mortgage loans and issue mortgage-backed securities. A real estate mortgage investment conduit may be organized as a partnership, a trust, a corporation, or an association and is exempt from federal taxes. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.

We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. A financial asset securitization investment trust FASIT was a tool for securitizing non-mortgage debt with short maturities, such as car loans. A sequential pay CMO is a mortgage obligation that retires tranches in order of seniority.

An asset-backed security ABS is a debt security collateralized by a pool of assets. Mortgage-Backed Security MBS A mortgage-backed security MBS is an investment similar to a bond that consists of a bundle of home loans bought from the banks that issued them. Government National Mortgage Association Ginnie Mae Ginnie Mae is a federal government corporation that guarantees securities that underwrite mortgages, helping lenders serve more homeowners. Partner Links.

Related Articles. Investing Essentials What Is Securitization? Investopedia is part of the Dotdash publishing family. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. More complicated mortgage-backed securities, known as collateralized mortgage obligations CMOs or real estate mortgage investment conduits REMICs , consist of multiple classes of securities designed to appeal to investors with different investment objectives and risk tolerances.

In a CMO, principal and interest payments made on the pool of mortgage loans are distributed to the different classes of securities, known as "tranches", according to a priority of payments.

Each tranche may have different principal balances, coupon rates, prepayment risks, and maturity dates. An important risk with regard to residential mortgage-backed securities and collateralized mortgage obligations involves prepayments, typically because homeowners refinance when interest rates fall.

Such prepayments tend to return principal to investors precisely when their options for reinvesting those funds may be relatively unattractive. In addition to prepayment risk, investors in these securities may also be exposed to significant market and liquidity risks.

How do you become a CMO? Is a CMO a pass through security? Is CMOs tax exempt? Are CMOs backed by the government?

How does a CMO work? What is a Vadm CMO? How often do CMOs pay interest? Is a CLO a derivative? Who created CDOs? What is the CMBS market? What is prepayment risk? What is the difference between collateralized and unsecured bonds? However, since forbearance changes the structure of the underlying collateral, again, these protections would have an effect on the REMICs too. At the end of the day, mortgage securities and the REMICs who issue them are generally considered to be a fairly safe investment option, particularly for those investors who are averse to risk.

Their payment structure and underlying collateral make them an attractive addition to a portfolio. Still, if the financial crisis taught us anything, it's that no investment is ever completely without risk. With that in mind, if you've been thinking of investing in mortgage-backed securities, it's a good idea to do some research on real estate mortgage investment conduits first.

You can use this post as a guide to help you get started. However, if you have more specific questions regarding REMICs and how they work, it might not be a bad idea to reach out to a financial professional. Our team of analysts agrees. These 10 real estate plays are the best ways to invest in real estate right now.

Find out how you can get started with Real Estate Winners by clicking here. Tara Mastroeni is a real estate and personal finance writer. Her work has been published on sites like Forbes, Business … Learn More. Advertiser Disclosure We do receive compensation from some affiliate partners whose offers appear here. Millionacres Logo. Tax Deductions Depreciation Capital Gains. New York City Denver Philadelphia. Local Real Estate News.