Understanding Collateralized Mortgage Obligations (CMOs)

What is a Collateralized Mortgage Obligation (CMO) primarily composed of?

• A single mortgage

• A collection of mortgages

• A group of stocks

• A set of bonds

Why are mortgages packaged together in a CMO?

• To increase individual mortgage risk

• To create a volatile investment

• To manage risk and reduce volatility

• To decrease interest rates

What was a major consequence of the misuse of CMOs by Wall Street?

• A decrease in stock market investments

• A rise in housing prices

• The financial crisis of 2008-2009

• Increased mortgage rates

How did Wall Street abuse the concept of collateralized mortgages?

• By reducing interest rates

• By pledging equity and borrowing against it

• By converting them into government bonds

• By selling them as individual stocks

What was the result of one mortgage going bad during the financial crisis?

• It resulted in increased housing prices

• It led to a decrease in mortgage rates

• It caused a chain reaction of panic

• It had no effect on the economy