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Definition: Mortgage Cash Flow Obligation – MCFO
Mortgage Cash Flow Obligation is an financial instrument in which cash from a mortgage pool is used to pay principal and interest back. Every mortgage receives regular monthly installments. These installments are combined together and a pool is created. Now this pool generates revenue which in turn pays back the investors.
Mortgage Cash Flow Obligations are risky because the owners of these obligations have no control over the underlying assets i.e. mortgages. Mortgage Cash Flow Obligation is similar to an unsecured security.
These are similar to collateralized mortgage obligations (CMOs) but they are different. CMOs are secured.
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