A corporate investor's guide to REMICs and CMOs

Abstract

Increasing numbers of investors have been getting involved in the secondary mortgage market by purchasing asset‐backed securities, including investments in real estate mortgage investment conduits and collateralized mortgage obligations. Although securitization is an evolving area, pledging expected asset cash flow to raise funds has become standard practice. Several factors have led to the popularity of securitization, namely, an ability to quantify and minimize the risk, assignment of independent credit ratings, and enhanced after‐tax rates of return when compared to comparable credit‐risk investments. This article discusses the economics of these investments, as well as the appropriate accounting and tax treatments.