WHAT IS A CMO AND HOW CAN YOU MAKE MONEY WITH ONE?
WHAT IS A CMO AND HOW CAN YOU MAKE MONEY WITH ONE
?
To begin, a Collateralized Mortgage Obligation (CMO) is a type of mortgage-backed security.
It represents a special purpose vehicle (SPV or also known as special purpose entity - SPE) that is completely separate from the institution that has created it and is an owner of a set of mortgages, referred to as a pool.
Investors in CMOs buy bonds issued by the entity. The cash flow from the underlying collateral (the mortgages) is distributed over a series of tranches (also known as classes) with varying maturities and prepayment risks, designed to meet specific investment objectives.
Investors in collateralized mortgage obligations include banks, insurance companies, hedge funds, mutual funds, pension funds, government agencies, and since the recent financial crisis even central banks.
So, how does a basic CMO (Sequential CMO) work?
Each tranche in a CMO differs in the order bondholders receive principal payments. As payments on the underlying mortgage loans are collected, the interest is first paid to the bondholders in each tranche till it is completely paid off. The principal payments on the other hand are paid out first to investors in the first tranches until they are completely paid off. Then investors in the second tranche are paid off followed by investors in the next tranche.
What is the the procedure for this opportunity with us:
The client will purchase the CMO's from their preferred securities clearing house / broker. Or we can use client's if they already have one.
The provider recommended by the Trader is Merrill Lynch, but the client would still need to use a clearing house that they know or trust.
We have direct contact to a trader in Italy via his Program Director.
The Trader has a pre-approved credit line of 8% of Face Value on any AAA rated CMO's
The trader will then place this on a 40 week program yielding 5%-10% per week.
The trade group also has a relationship with Merril Lynch, who are selling AAA rated CMO's: $1m buys $1B face value
This process can go very quick (as little as 5 days to be in trade) and there is a deadline of 15 November 2010 to get in.
Practical Example:
Client puts in $1m - The $1m buys a $1B CMO
$1B x 8% LTV = $80m
At worst case 5% per week that is $4m per week $16m per month
At best case 10% per week that is $8m per week $32m per month
Once the Screenshot is received, this will be sent to the trader along with the compliance package.
The Trader will issue the Trade Contracts and activate the credit line, within 7 Business days they will be in trade.
Once a potential client submits a basic compliance package (CIS, POF, Passport,LOI- stating interest to purchase CMO's for trade) The trade group will then walk the client through the process.
The CMO's are valid for 20-30 Years, this trade is a 40 week program, after the program the CMO will be returned to the client.
The best way to get further clarification for interested parties would be to submit a compliance package to us. Once client has contact with the trader and he has explained everything, client can make the final decision if they want to go ahead.
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