Collateralized Mortgage Obligation(CMO):

The CMO meets the demand for mortgage-backed securities with a range of maturities by dividing the
overall pool into a series of classes called tranches. The so-called fast-pay tranche receives all the
principal payments made on the entire mortgage pool until the total investment of the investors in the
tranche is repaid. In the meantime, investors in the other tranches receive only interest on their
investment. In this way, the fast-pay tranche is retired first and is the shortest-term mortgage-backed
security. The next tranche then receives all of the principal payments until it is retired, and so on, until
the slow-pay tranche, the longest-term class, finally receives payback of principal after all other tranches
have been retired.