Sequential Pay CMO
A type of collateralized mortgage obligation (CMO) in which there are several tranches. Each tranche's holder receives interest payments as long as the tranche's principal amount has not been completely paid off. The senior tranche receives all initial principal payments until it is completely paid off, after which the next most senior tranche receives all the principle payments, and so on. Investopedia Says:
Investors with shorter investment horizons, such as commercial banks, can purchase bonds from senior tranches in order to protect their investments from extension risk. Investors with longer investment horizons, such as pension funds, can protect their investments from contraction risks by purchasing bonds from more junior tranches. Related Terms:
Collateralized Mortgage Obligation - CMO
Contraction Risk
Extension Risk
Fannie Mae - Federal National Mortgage Association - FNMA
Mortgage-Backed Securities - MBS
Pass-Through Security
Prepayment Risk
Tranches
Z-Tranche |