The biggest difference between mortgage-backed securities and collateralized mortgage obligations is that investors interested in mortgage-backed securities have a variety of risk tranches to choose from, while there are no such tranches provided by collateralized mortgage obligations.

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Collateralized Mortgage Obligations (CMOs) actually offer a variety of risk tranches to investors, allowing them to choose levels of risk and return that suit their investment strategies, whereas mortgage-backed securities (MBS) typically do not offer this level of tranche differentiation.

The Biggest Difference Between Mortgage-Backed Securities and Collateralized Mortgage Obligations