One of the risks of holding a pass-through, mortgage-backed security is early repayment risk (i.e., risk that the mortgage will be repaid earlier than expected by the payee). How do CMOS (collateralized mortgage obligations) reduce this risk somewhat for the purchaser?

creates tranches or classes for pass-thru of cash flows (e.g., earlier tranches consist of pro-rata share of interest and sequential application of principal repayment; last tranche consists of last principal payments)

offer insurance to guarantee insure early prepayments

there is no mechanism for risk reduction due to early repayment

prohibit mortgage holders from repaying mortgage early