It stands for collateralized mortgage obligation; a structured product that is backed and collateralized by a pool of mortgage loans and similar debt arrangements. It is a type of mortgage-backed security (MBS) that consists of a collection of mortgages packaged together and sold to investors (in which case, the investors/ lenders or holders of the securities) as one unit. These underlying assets of the mortgage loans (e.g., mortgaged assets) provide a collateral if the loan ends up in default (in case the borrower runs into default on payment/ repayment). The proceeds collected from the pool of mortgages will be used to service the debt embodied in the securities held by the investors (the lenders).
By origin, a collateralized mortgage obligation belongs to the broader category of collateralized debt obligations (CDO), which naturally harbors a great amount of risk (i.e., default risk, credit risk, etc.) However, such products serve as financial conduits for risk shifting amongst market participants, and provide a source of market liquidity if properly packed and repackaged.
