877-218-1776 
FINRA definitely wants you to know a lot about CMO advertising, disclosures and suitability. A collateralized mortgage obligation (CMO) is a mortgage-backed security issued by Government- sponsored entities (such as Fannie Mae and Freddie Mac), broker-dealers and private finance companies . The securities are structured much like a pass-through certificate and the terms are set into different maturity schedules, known as tranches. Pools of mortgages on one to four- family homes collateralize CMOs. Investors in most CMOs receive monthly interest and principal payments based on the mortgage payments made by the homeowners. CMOs issued by Fannie Mae and Freddie Mac have largely had their credit risk offset through government guarantees. However, private label CMOS issued by broker-dealers carry the credit risk of the issuing entity even if all of the mortgages in the pool have been insured by government entities. Changing interest rates will impact the price of the CMO and the cash flow received by the investor. As interest rates change, homeowners tend to refinance homes based on the prevailing market rates. If interest rates rise, refinancing activity slows and in times of falling rates, refinancing activity accelerates. As a result the expected life and the ultimate yield for the CMO is subject to change. All retail communications relating to collateralized mortgage obligations must clearly disclose this fact to investors. Specifically, the communications must contain statements advising the client that the information regarding the yield and life of the CMO is based on certain prepayment assumptions and that those assumptions may or may not be met. To ensure that these required disclosures are included in print advertisements FINRA has created a standard CMO advertising template for use by member firms. Broker-dealers are free to use this template or to create their own provided that all of the required disclosures detailed in FINRA’S template are included. Television and radio advertisements are required to contain the same disclosures that appear in the template. Further, broker-dealers are required to provide retail investors with educational material covering the performance and risk characteristics of CMOs. This material must detail the impact changing interest rates have on CMOS, an explanation of the various tranches and a glossary detailing the relevant terms used. Because of the unique characteristics of CMOS, CMOS may not be compared to other interest-bearing investments such as bonds or other debt securities. Additionally, there are specific disclosures which must be made on a customer’s confirmation. The nominal face value, nominal yield, anticipated average life and yield, final maturity date, the specific tranche, CUSIP number if assigned and underlying securities must be disclosed on a customer’s confirmation.