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 $500 million of CMOs that have principal payments toward those mortgages become the interest and principal payments that go to the CMOs.and interest payments of $2 million per month. CMOs are that are backed by a pool of underlying mortgages. The interest and
If a large number 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.
Why Do Clean Up Call Provisions Matter?
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