Collateralized mortgage obligations (CMO) are one of the many mortgage-backed securities implemented by banks to increase their liquidity. This is where numerous mortgages are combined together in the form of packages to be sold to investors. This allows banks to attain liquidity in a very small duration of time.
Using mortgages in such a way makes CMOs one of the most useful tools for both the bank and the investors. Although their higher unpredictable nature also makes CMOs some of the riskiest investments. With improved regulations imposed by the central banks and other regulators, CMOs can be one of the best ways to diversify an investment portfolio.