As a loan officer, you will come across tranches when a borrower comes to you for help moving the risk of CMO prepayment penalties. However before you do, you need to know how they work and how they can affect you and your borrower.
Using tranches is a good way to move the risk of investments and prepayment penalties, but should you rely on them? The simple answer is no, you shouldn’t rely on them entirely. However, that doesn’t mean that you should shy away from them altogether. By knowing the risk of tranches, you can smartly invest and […]
Tranches are portions of mortgage-backed securities that are split when a bank and it turns into a collateralized mortgage obligation. Each tranche is based on its date of maturity, or when a homeowner is scheduled to pay off their mortgage, then by risk.