Magazine article American Banker

Citicorp Readies First Private CMOs Assuring Minimum Return

Magazine article American Banker

Citicorp Readies First Private CMOs Assuring Minimum Return

Article excerpt

WASHINGTON -- A Citicorp subsidiary was expected to price a $500 million offering of collateralized mortgage obligations Thursday, investment bankers said.

The deal is the largest offering of CMOs backed by conventional home loans that do not have the support of a federal mortgage agency. Citicorp is the second bank holding company to have an affiliate isue CMOs -- following Norwest Corp. of Minneapolis, which has offered several issues.

Lead underwriters for the issue are the First Boston Corp. and Salomon Brothers Inc. A spokesman for the firms said they expect the issue to receive AA ratings from Moody's Investors Service and Standard & Poor's Corp.

The securities, offered by Citicorp

Homeowners Mortgage Acceptance Corp., carry two guarantees by the bank. The first one guarantees ultimate payment of principal and interest of the pledged mortgages. The second is unique for a private mortgage securities issue in that it guarantees minimum cash flow to its holders.

In a CMO, the cash flow from mortgages or mortgage-backed pass-through securities is pledged to support payments to investors who have purchased securities in a series of different maturities.

CMOs are considered to be an improvement on the traditional pass-through security because the cash flow and maturity are more predictable for the investor.

Because a pass-through represents ownership of a proportional share of a number of loans, the investor runs the risk of having his securities paid off earlier or later than expected, depending on how long the homeowners hold on to the mortgages. …

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