So, a collateralized debt obligation is a type of debt that is backed by an asset. The asset can be anything of value, but it is typically something that can be easily sold or used as collateral if the borrower defaults on the loan. For example, a collateralized debt obligation might be backed by a pool of mortgages.

Key Takeaways. A collateralized loan obligation (CLO) is a single security backed by a pool of debt. CLOs are often corporate loans with low credit ratings or loans taken out by private equity firms to conduct leveraged buyouts.

A collateralized debt obligation is a complex structured finance product that is backed by a pool of loans and other assets. These underlying assets serve as collateral if the loan goes into default. The tranches of CDOs indicate the level of risk in the underlying loans, with senior tranches having the lowest risk.

CMOs are held inside a REMIC as a separate legal entity. Since its income is passed through, the REMIC is typically exempt from federal tax on the income it collects from the underlying mortgages. However, since investors receive interest payments, that is considered taxable income.