True or False: An individual investor in a CMO is a real estate investor?
No is not.
Nope because you dont invest directly in real estate
no, because if a borrower defaults on their mortgage the shareholder of a CMO does not have the right to the real-estate asset
can somebody explain?
Incorrect. Investments in mortgages, including pools of mortgages, is considered real-estate investing.
says who?
CFA Book 6, Reading 76, Page 189-190. This has also come up several times for me on schweser qbank.
that makes no sense… A CMO can be stripped into interest and principal payment pools (just like bonds)… so how are these considered real-estate investments?
mcf Wrote: ------------------------------------------------------- > True or False: > > An individual investor in a CMO is a real estate > investor? hmmm, got me. A CMO is a tranched mortgage back. Both CMO and MBS are investments with REAL ESTATE flows as the underlying, so I would say YES. INDIRECTLY, a CMO is a real estate invesmtment. God dam$ that’s tricky
Pooled investments in real estate. I find it odd as well, which is why I bring it forward to the group. They seem to have a broad definition of real estate investing that just depends on the underlying being real estate.
mcf Wrote: ------------------------------------------------------- > Pooled investments in real estate. I find it odd > as well, which is why I bring it forward to the > group. They seem to have a broad definition of > real estate investing that just depends on the > underlying being real estate. THX for posting it
I still don’t agree that it should be considered real estate investing. The only thing that you are investing in is the future flows of money coming from the mortgages. After the mortgages are paid off on the underlying assets, you are left with nothing except the cash flows you have already recieved whereas the person who paid for the assets with the mortgage owns the property now. If the value of the real estate goes up, you don’t realize any extra gains from it. It may actually hurt you because there is a better chance that the property buyer will pay off their mortgage earlier leaving you with a higher reinvestment risk. Just my opinion, which obviously the CFA Institute disagrees with. Need to stick to their opinion, thanks for bringing it up…
what happens when borrowers default? If I have a CMO or any MBS, can I get possession of their house. I would assume so- as it is asset backed. If this is true then i would consider them a real estate investment.
Don’t even touch CMO’s. subprime is gonna take all your money!!
Oh, come on. We’re so beyond sub-prime at this point! That was such a 3Q 07 issue. 
Does this happen- If I have a CMO or any MBS, can I get possession of their house if they default?
My guess in actuality is that the securitzation would liquidate the asset and you’d get a residual claim.
The servicers will handle the Foreclosure, REO and liquidation process and remit whatever monies are recovered back to the trust/bondholders once servicer advances and other REO costs are taken out.
In simple terms, yes you do posess the RE after default. In reality, as Dingo said, the servicers/trust will handle this and the proceeds will be dsitributed according to the tranche you are in, starting qith the AAA and down to the Z/equity. For what it’s worth, I would consider this a real estate investment, because the value of the security will be influenced by recovery on the underlying pools of mortgages (especially today).