A collateralized mortgage obligation (CMO) is a debt identity that manages debt separately from the entities that established it. Mortgages are pooled to create bonds, called tranches, with defined rules and terms for investors. CMOs are used for high-priced properties and by banks, insurance companies, hedge funds, and government agencies. The collateralized mortgage obligation is […]
Financial commitments are liabilities for individuals or entities that promise to bear certain expenses, with some having due dates and others ongoing. Businesses, governments, and consumers all make financial commitments, which can result in legal action if not fulfilled. A financial commitment occurs when an individual or an entity assumes the responsibility of covering certain […]
An accumulated benefit obligation (ABO) estimates an employee’s current pension plan value based on contributions made up to that date. Companies must disclose their ABO for potential investors, as pension payments can become substantial and add significantly to expenses. Pension accounting can identify problems such as shortfalls, and employees can request an overview of their […]
Collateralized loan obligations (CLOs) pool loans from various businesses and resell them to multiple lenders to make the financial system more efficient. However, CLOs add complexity and were blamed for contributing to the 2007 banking crisis. They involve commercial business loans, bonds, and mortgages, and lenders receive different payment levels based on risk. The system […]
A mortgage obligation is a legal document that gives a lender rights to a borrower’s assets if a loan is defaulted. It is often required by banks for business loans and can include physical property, unpaid bills, or the business itself as collateral. The bank may also have the right to take over all business […]
A collateralized bond obligation (CBO) is a bond backed by a pool of junk bonds, but is intended to be investment grade. The varying levels of credit quality of bond funding provide overall stability to the backstop, and the interest rates are usually credible. The risk is minimal, making it an attractive option for smaller […]
A secured debt obligation is an investment backed by multiple assets, including non-mortgage bonds or bank loans, creating higher risk but also higher returns. Collateralized debt obligations (CDOs) are investment grade securities that use a mixture of debt instruments to back a single bond. Investors do not own the debt instruments but have access to […]
