Miami Collateralized Mortgage Obligations Attorney

Collateralized mortgage obligations (CMOs) are complex, sophisticated investment products that are often sold as safe “fixed income” but can be very, very risky. Basically, a pool of mortgages is assembled and various ownership classes of CMOs are issued that are tied to various aspects of the pool of mortgages. For instance, one class of the CMOs might be entitled to only the interest payments from the mortgages in the pool. Another class might be entitled to only the principal payments from the mortgages. A third class might be entitled to both principal and interest payments, but only after the first two classes have obtained a preferred return of some specified amount. Thus, each class of CMO has a totally different risk profile than the others. Further, not all pools are the same. Some pools may consist of only second mortgages. Others may consist of only borrowers with a credit score below a certain number. Thus, the broker must explain to the customer exactly the risks of the particular CMO and the pool that it is derived from.

Both the value of a CMO and the return it generates are subject to changes in interest rates and changes in the rate at which borrowers resell or refinance their properties. This is known as the “prepayment risk.” Investors in CMOs must be prepared to face the prepayment risk, as well as market and liquidity risks. Because of those risks, CMOs are completely unsuitable for many investors.

Carlson & Associates, P.A. has experience in handling CMO cases. Contact our Miami investment fraud attorneys today.

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Carlson & Associates, P.A. has years of experience helping Miami clients with investment fraud, corporate & partnership disputes, officer liability and coverage & legal and accounting malpractice. Contact us online or call 305-372-9700 for more information or assistance.