Home loan pre-payments spur demand for CMO

 CMOs, a variation of the traditional residential mortgage-backed securities (RMBS), are structured in a manner to alter the maturity profile of the collateral and to manage the pre-payment risk.

 Issuances of RMBS in India have till date, been in the form of pass through certificates where the entire cash flow received from the collateral pool (i.e. the home loans that have been securitised) are passed on to investors in an undivided manner.

 However, mortgage loans offer the borrower a prepayment option. As such, the high levels of pre-payment in a declining interest rate scenario leads to investors