Securities dealers reduce the uncertainty associated with mortgage debt cash flows through the development of

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Collateralized mortgage obligations (CMOs) are securities backed by a pool of mortgage loans. They are created by securities dealers or investment banks as a way to reduce the uncertainty associated with mortgage debt cash flows. The underlying mortgage loans are split into several "tranches," each with different risk levels and cash flow characteristics. This allows investors to choose the tranche that best fits their risk tolerance and cash flow needs, resulting in reduced uncertainty for both borrowers and investors. Convertible and callable mortgages are not typically used to reduce uncertainty in mortgage debt cash flows, and tax-exempt commercial paper is a type of short-term debt issued by municipalities or other tax-exempt entities.

Securities Dealers Reduce the Uncertainty Associated with Mortgage Debt Cash