A call feature of a Collateralized Mortgage Obligation (CMO)
designed primarily to reduce the issuer's reinvestment risk. If the cash
flowgenerated by the underlying collateral is not enough to support the
scheduled principal and interest payments, then the issuer is required to
retire a portion of the CMO issue.
Also known as a "clean-up call."
Investopedia explains 'Calamity Call'
A Calamity Call is only one type of protection used in CMOs.
Other types of protection include overcollateralization and pool insurance. In
addition to protecting against reinvestment risk, Calamity Calls can be used to
protect against default losses. They can be used in CMOs structured from second
lien mortgages, where there is more limited protection against default losses.
This is in contrast to overcollateralization which may be enough to provide
sufficient protection to underlying pools of conventional fixed-rate mortgages.
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