Final answer:
Reflexive Collateralized Mortgage Obligations (CMO-R) represent a segment of a CMO that reinvests interest into additional mortgage-backed securities, thereby providing liquidity and extending the tranche's life.
Step-by-step explanation:
The term Reflexive Collateralized Mortgage Obligation (CMO-R) pertains to a type of CMO, which is a complex financial instrument used in the mortgage-backed securities market. Reflexive CMOs are a tranche within the broader CMO structure that reinvests interest payments from mortgages into additional mortgage-backed securities. This mechanism is designed to provide additional liquidity and to extend the life of the tranche.
In essence, CMO-Rs can be thought of as a reinvestment tool within the CMOs that aim to stabilize the cash flow and ensure a longer stream of payments to investors. They are subject to the same types of risks as other mortgage-backed securities, such as prepayment risk, interest rate risk, and credit risk. Understanding the structure and function of a CMO-R is important for investors who are considering the various types of securities within the secondary mortgage market.