Does the interest you earn from CMO issued by a govt agency change each mth?

Question

So what your saying is yes it changes each month..... According to weither or not someone pays off, does not pay or just makes their regular payment on the mortgage note?

Answer 1

Usually.

A CMO is a pass-through.  If somebody who has a mortgage backing your CMO doesn't pay, you don't get paid.  If someone pays off, then the principal gets passed through and the interest stops.  This gets really complicated with interest only and principal only CMOs held by different investors.

Answer 2

Most are. CMOs are subject to prepayment risk, and IO certs are subject to extension risk. Although the note usually has a stated amount (ie Libor + 250, or 6 1/2%) the note pay out sooner or later than you expected.