CMOs

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					Information  about the investment products contained in this presentation is solely for informational
purposes and does not constitute a specific recommendation of either an offer to sell or the solicitation of
an offer to buy any investment. Any specific investment terms are indicative only and may not reflect an
actual investment that is, or will be, available for purchase from StockCross Financial Services, Inc. The
information herein is not, and is not intended to be, a complete discussion of all material information you
should know about any investment or investment class. You should carefully read the relevant prospectus
and related supplements or other offering documents prior to making a purchase. You should not rely on
the information contained in this presentation in connection with the purchase of any investment product.
There   shall be no sale of the investments discussed herein in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or qualification under the securities laws of
such jurisdiction.
The   investments or strategies referenced do not take into account the investment objectives, financial
situation or particular needs of any specific person. Product suitability must be determined for each
individual investor. It is your responsibility to verify any information contained in this presentation
before making any investment decision.
   Collateralized Mortgage Obligations (CMOs) are securities
    backed by a pool of mortgages and issued to the public.

   The CMO is set up as an entity that owns the mortgages in its
    portfolio.

   From the pool, the CMO creates tranches, individual bonds
    that are sold to investors.

   CMOs are pass-through certificates so, as mortgages are
    repaid, investors receive their portion of the payment.
The  simplest way to think of a CMO is to first create a mock
CMO with one mortgage. Say, for example, a homeowner takes
out a mortgage for $500,000 paying 5%. This could be split into
500 $1000 bonds (tranches) paying 4.75% with 0.25% that is
used to cover administrative costs.
Prepayment     Risk: If interest rates fall and homeowners
refinance, the CMO will be paid off. The investor is then left to
reinvest at lower market interest rates.

Extension   Risk: The average mortgage is 30 years (10 years
average refinance) meaning that a CMO is a long-term
investment. If interest rates rise and people don’t refinance, the
investor’s money will be tied up for a longer time period when
they could be getting a higher rate elsewhere.
Credit  Risk: If people default on their mortgages, no payment
will be made. Thus, there is limited upside (interest payment)
with a chance of great loss.

  •Credit risk can be reduced by purchasing tranches of CMOs that only invest in
  insured mortgages should a significant percentage of the mortgages go into default.
  Sequential (Time) Tranches: Structured so that the owner of
the first (senior) tranche receives principal payment first. More
certainty of payment for early tranches, greater risk for later
tranches.

 Z Tranche: Often used with Sequential Tranches. A Z
Tranche does not pay any principal or interest to the investors
until all other tranches paid off in full.
ParallelTranching: Each tranche receives equal payments.
May be split into interest-only or principal-only tranches.

Planned Amortization    Class (PAC) and Target Amortization
Class (TAC): Aim to create more certainty by using support
tranches if prepayment occurs too early.

Credit  Tranching: The junior-most holder is the first to take a
loss on principal. Developing these tranches protects more senior
holders unless default rates escalate.
   Agency CMOs: Agency CMOs generally only invest in
    mortgages that are covered by separate insurance providing
    protection to the investor in case of defaults.

   Overcollateralization: Generally used for lower-quality
    mortgages. Value of tranches is less than collateral value of
    mortgage pool, assuming some percentage of default. Protects
    only to the extent the default rate is assumed.

   Spread: Tranches pay lower rate than mortgages, difference
    held in escrow in case of default.
CMOs    consist of tranches offered to investors as a way of
investing in a pool of mortgages.

Depending    on the specific mortgages underlying the CMO or a
specific tranche, risks can vary greatly.

  is important to fully understand how a particular tranche of a
It
CMO will affect your risk and if it can meet your objectives.
 The first Collateralized Mortgage Agreement was created in
1983.

  Today, many Collateralized Mortgage Agreements exists with a
variety of tranches and mechanisms to meet the needs of high-
risk and moderate-risk investors.
StockCross Financial Services, Inc.
9464 Wilshire Blvd
Beverly Hills, CA 90212
Toll Free:     800.225.6196
Local: 310.385.0948
Email: info@stockcross.com

				
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