CMO & CDO Attorneys — Collateralized Mortgage Obligation Losses

Written and reviewed by

Ryan Bakhtiari, Partner — Bakhtiari & Harrison

Admitted: CA | NY | TX | DC | Multiple Federal Courts · Super Lawyers 2005–2026 · Former PIABA President · Former FINRA NAMC Chairman · Last reviewed: May 2026

Bakhtiari & Harrison represents investors in collateralized mortgage obligation (CMO) and collateralized debt obligation (CDO) claims in FINRA arbitration and securities litigation nationwide. CMOs and CDOs are complex structured products that pool mortgage loans or other debt obligations and divide the resulting cash flows into tranches with different risk and return profiles. They were widely misrepresented to retail and institutional investors as safe, high-yield alternatives to conventional bonds — and their catastrophic failure during the 2008 financial crisis caused enormous investor losses. Ryan Bakhtiari served as Chairman of the FINRA National Arbitration and Mediation Committee from 2013 to 2017 and as President of PIABA. Investor cases are handled on a contingency fee basis — no recovery, no fee.

What are CMOs and CDOs?

Collateralized Mortgage Obligations (CMOs)

A CMO is a structured security backed by a pool of mortgage loans. The cash flows from the underlying mortgages — principal and interest payments — are divided into tranches with different payment priorities, maturities, and risk profiles. Senior tranches receive payment first and carry the lowest risk and yield. Junior and subordinate tranches absorb losses first and carry higher risk and yield. CMOs were widely sold to retail investors as “safe” fixed income alternatives offering yields above conventional bonds.

Collateralized Debt Obligations (CDOs)

A CDO uses the same tranche structure but pools a broader range of debt obligations — corporate bonds, loans, other structured products, and in the case of “synthetic CDOs,” credit default swaps rather than actual assets. CDOs were particularly prevalent in the years leading up to the 2008 financial crisis, when they were used to repackage subprime mortgage exposure into instruments that received investment-grade credit ratings despite the underlying credit quality of the assets.

How CMOs and CDOs were misrepresented

Credit rating misrepresentation: investment-grade credit ratings assigned to CMO and CDO tranches by Moody’s, S&P, and Fitch created the false impression that these instruments were as safe as comparably rated corporate bonds. The ratings failed to account for the correlated default risk of the underlying mortgage pools.
Complexity concealing risk: the tranche structure of CMOs and CDOs made it effectively impossible for retail investors to independently evaluate the true risk of the instrument. Brokers who recommended these products without understanding their actual risk profile failed their due diligence obligations.
Prepayment and extension risk: CMOs are subject to prepayment risk (when interest rates fall, mortgages are refinanced early, shortening the CMO’s maturity and reducing yield) and extension risk (when rates rise, prepayments slow, extending the CMO’s maturity beyond what was expected). These risks were frequently not explained to retail investors.
Concentration in mortgage-related instruments: investors who held portfolios concentrated in CMOs, CDOs, and other mortgage-related structured products faced catastrophic correlated losses in 2008 when the residential mortgage market collapsed simultaneously.

Frequently asked questions — CMOs and CDOs

I held CMOs that were rated AAA — how did I lose money?

The AAA ratings assigned to CMO and CDO tranches by major credit rating agencies proved to be fundamentally unreliable. The ratings models did not adequately account for the possibility that residential mortgage default rates could rise simultaneously across the entire country — the correlated default scenario that actually occurred in 2007-2008. Investors who relied on those ratings had reason to trust them — and broker-dealers who recommended CMOs as safe instruments based on those ratings may face liability for the resulting losses. cmo

Can I still bring a CMO or CDO claim for 2008 losses?

The FINRA six-year eligibility period and applicable statutes of limitations may have run for most 2008 CMO losses. However, some claims may still be viable depending on when the investor discovered the full extent of the misrepresentation and specific tolling arguments. Contact Bakhtiari & Harrison for a free evaluation of your specific situation before assuming a deadline has passed.

I still hold CMOs that have not fully recovered — do I have ongoing claims?

Possibly. If you continue to hold CMOs that have not returned to their original value and you believe they were unsuitably recommended or misrepresented, the ongoing harm may support claims that are still within applicable limitations periods. Contact Bakhtiari & Harrison for a free evaluation.

For a full overview of the firm’s investment product failure practice, visit the Product Failure page.

Contact a CMO and CDO attorney — free consultation

Contact Bakhtiari & Harrison for a free, confidential consultation. Our FINRA attorneys evaluate every potential investor claim at no charge. Investor cases are handled on a contingency fee basis — no recovery, no fee.

Investor cases are handled on a contingency fee basis — no recovery, no fee.

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