CMO vs Mortgage Pass through securities

Hi guys

It is clear to me that Collateralized Mortgage obligations are backed by Mortgage Pass through security and that Mortgae pass through securities are backed by loans/mortgages etc.

I have read that the reason to create CMO is tranching, hence the ability to investors to be exposed to different type of credit/prepayment/extension risk.

My question is why a 3 layers structure is needed?

Couldn’t just the Mortgage Pass through security be structured on different tranches that would have different priorities of payments? Am I missing something here?

Thanks a lot!

A pass-through security is a pool of mortgages all having simillar credit qualities and cash flows.

A CMO is a pool of pass-through securities that allocates cashflow prepayment and interest based on it’s own structure. So an investor doesn’t need to worry about choosing the type of mortgage that would give him a certain type of credit exposure. The CMO handles it for him. Same goes for CDOs.