CMO – Collateralized Mortgage Obligations

  • REMIC – Real Estate Mortgage Investment Conduit
  • 1987 – SOA – Sources of Capital for Investment and New Business, rsa87v13n318 – Society of Actuaries – 42p
  • 1987 – SOA – New Investments and New Investment Strategies, rsa87v13n35 – Society of Actuaries – 48p
  • 1990 – SOA – VASP – Session 10 – Panel: CMO and Other Asset Projections, VASP9016, Society of Actuaries – 60p
  • 1991 – SOA – VASP – CMO Boot Camp: In the Tranches, vasp914, Society of Actuaries – 60p
  • 1991 – SOA – VASP – Practical Asset/Liability Modeling for CMOs, VASP9110, Society of Actuaries – 76p
  • 1991 0227, 0507, 0509 and 0523 – GOV (House) – Insurance Company Solvency, (CSPAN) Insurance Company Insolvencies, Cardiss Collins (D-IL)  —  [BonkNote]
  • Other new derivative products that are spawned from mortgages include collateralized mortgage obligations (CMOs).
  • Finally mortgage-backed securities have given rise to new analysis techniques that should be of interest to actuaries as well as investors.
    • It’s these analysis techniques upon which I would like to now focus.

—  Robert P. Clancy

1987 – SOA – New Investments and New Investment Strategies, Society of Actuaries – 48p

  • Who issues CMOs?
  • The first and largest issuer is the Federal Home Loan Mortgage Corporation (FHLMC).
  • Securities firms have employed special purpose corporations to issue CMOs.
  • Examples include:
    • Mortgage Bankers Financial Corporation — Kidder Peabody; Collateralized Mortgage Securities Corporation — First Boston; Salomon Brothers Mortgage Securities — Salomon Brothers; Paine Webber Programmed Amortization Term Securities — Paine Webber; and Investors GNMA Mortgage-Backed Securities Trust — Lehman Brothers.
    • Home builders also have issued a significant amount of CMOs.
    • Graph 7 shows the CMO activity going on.

1987 – SOA – Sources of Capital for Investment and New Business, Society of Actuaries – 42p

  • Summary:
    • Securitized assets have existed since the introduction of collateralized mortgage obligations (CMOs) in 1983.
    • Attendees will view the construction of a simple CMO using a hypothetical mortgage portfolio to demonstrate the basic structure used in the marketplace and to illustrate the vocabulary used to describe these investments.
      • This session also uses real life examples to demonstrate the more complex collateral types and structures and the risks and rewards of these financial instruments.

2001 – SOA – Introduction To Securitized Assets, rsa01v27n3151ts – Society of Actuaries – 36p

  • …I would like to address a very basic question that I often get when I talk about CMOs, namely, “Where do CMOs come from?”
  • CMOs were first originated in 1983 by a few home builders and thrifts.
    • The volume of originations grew slowly and steadily until 1986 and 1987, when the advent of the trust form of a CMO, and in particular something called REMIC (real estate mortgage investment conduit) legislation, gave it a tremendous boost.

—  Randall Lee Boushek, Lutheran Brotherhood, Actuary

1990 – SOA – VASP – Session 10 – Panel: CMO and Other Asset Projections, vasp9016, Society of Actuaries – 60p

  • (p104-105) – The junk-bond market, one time, was described to me by one person.
    • When I tried to explain what these were, they said it’s sort of like a second or a third or a fourth mortgage loan, then, on a corporation, that the banks get paid first and then the senior people. Then, at the end, you are sort of at the end of this.
    • I said in a sense, you are correct, and so, therefore, the risks on this are substantially higher.  Isn’t that true?
    • I said that is true, that is obvious, that, in liquidation, strict priority liquidation, you are going to get a lot less.
  • Well, in the mortgage business, it is the same thing.
    • We have first, seconds, thirds, and fourths.
    • We have straight mortgages. We have IO’s, PO’s.
    • ⇒  We have pieces of CMO’s that the Wall Street calls the toxic waste piece.
    • All these are high-risk assets, but under current reserving requirements in the insurance industry, there is no differentiation .

—   George E. Bull, III, president, GB Capital Management

1991 0227, 0507, 0509 and 0523 – GOV (House) – Insurance Company Solvency, (CSPAN) Insurance Company Insolvencies, Cardiss Collins (D-IL)  —  [BonkNote]

  • Real Estate Mortgage Investment Conduit (REMIC).
  • REMIC is some legislation that was actually passed in 1986.
  • We often call the collateralized mortgage obligations (CMOs) REMICs.
  • Essentially that’s just the tax treatment.

—  D.L. Auxier, Partner of Ernst & Young LLP in Memphis, TN

1996 – SOA – Asset-Backed Securities, rsa96v22n164ts – Society of Actuaries – 25p