A sequential pay CMO is a pooled debt instrument in which the tranches are amortized in order of seniority.
Each tranche of a sequential pay CMO gets interest payments as long as the principal amount of the tranche has not been fully paid off. The most senior tranche, on the other hand, receives all principal payments until it is entirely paid off. The next most senior tranche receives all principal payments once the first principal installments have been retired. Tranches are retired in ascending order of seniority until the entire CMO is retired. A plain vanilla CMO is also known as a sequential pay CMO.
1 Like