Collateralized Debt Obligations |

CDO’s & CMO’s Lawyers

Collateralized Debt Obligations (CDOs) and Collateralized Mortgage Obligations (CMOs)

Collateralized Debt Obligations (CDOs) and Collateralized Mortgage Obligations (CMOs) are structured asset-backed securities (ABS) whose values and payments are derived from the cash flows (interest and principal payments) received by portfolios or pools of underlying fixed-income assets.

CDOs and Asset-Backed Securities

While CMOs consist of pools of mortgage loans, CDOs do not specialize in one type of debt and can be pools of credit card debt, auto loans, airplane leases, other equipment leases and other types of loans and debt. The mortgages, credit card debt, auto loans, and other fixed-income assets serve as collateral for the CMOs and CDOs.

The streams of principal and interest payments on the mortgages held in a CMO or other fixed-income assets held in CDOs are distributed to the different classes of CMO and CDO interests, known as tranches. Each tranche may have different principal balances, coupon rates, prepayment risks, and maturity dates.

The more “senior” tranches receive payments of interest and principal first and are considered the safest tranches. The more junior tranches are subordinate to the senior tranches and receive their interest and principal payments only after the senior tranches receive their payments and only if additional money is left to make payments to the junior tranches.

As such, the junior tranches are much riskier than the senior tranches. Unfortunately, brokerage firms often sold the risky junior tranches to retail investors who could least afford the risk.

Excessively Risky Financial Products

CDOs and CMOs can be highly sensitive to interest rate changes and any resulting changes in the rate at which the homeowners or debtors refinance their debt or pre-pay their debt. These securities also can be highly illiquid, meaning they can be very hard to sell. Finally, CDOs and CMOs often are so complex that investors have no way of knowing what assets actually serve as collateral for the securities.

If your stockbroker or brokerage firm mislead you regarding the risk involved in investing in CDOs or CMOs, contact Dimond Kaplan & Rothstein, P.A., to schedule a consultation to learn how our lawyers may be able to help you recover your investment losses.

Did Your Bank or Brokerage Firm Misrepresent Risk?

Investors often rely on the trust of the bank or brokerage firm selling the CDO or CMO. Unfortunately, banks and brokerage firms often misrepresent the level of risk associated with CDOs and CMOs, and many investors who thought they were investing in a safe security have lost most or all of their money.

Did your bank load up your investment portfolio with weak, risky and unsuitable products such as CDOs and CMOs? You may be able to recover some or all of your investment losses through securities litigation or securities arbitration.

Contact Dimond Kaplan & Rothstein, P.A., to schedule a consultation with a  CDOs lawyer today at 888-578-6255. Our AV-rated* securities fraud law firm, based in New York City, Los Angeles, Detroit, Miami and West Palm Beach, also serves clients throughout the U.S. and the world.

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