What is a Clean-Up Call?
A clean-up call, also known as a calamity collateralized mortgage obligation (CMO) that requires the to pay off a portion of the if the underlying mortgages don't generate enough to make the and interest payments on the CMOs., is a feature of a
How Does a Clean-Up Call Work?
Let's say Company XYZ has issued $450 million of CMOs that have principal payments toward those mortgages become the interest and principal payments that go to the CMOs.
If several of the homeowners suddenly default on their mortgages or prepay their mortgages (by selling their houses before the mortgage is paid off), the might find itself unable to make those $2 million monthly payments to its holders. In this situation, a clean-up call may require the to pay off a portion of the CMOs.