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Calamity Call

What is 'Calamity Call'

A call feature of a Collateralized Mortgage Obligation (CMO) designed primarily to reduce the issuer's reinvestment risk. If the cash flow generated by the underlying collateral is not enough to support the scheduled principal and interest payments, then the issuer is required to retire a portion of the CMO issue.

Also known as a "clean-up call."

Explaining 'Calamity Call'

A Calamity Call is only one type of protection used in CMOs. Other types of protection include overcollateralization and pool insurance. In addition to protecting against reinvestment risk, Calamity Calls can be used to protect against default losses. They can be used in CMOs structured from second lien mortgages, where there is more limited protection against default losses. This is in contrast to overcollateralization which may be enough to provide sufficient protection to underlying pools of conventional fixed-rate mortgages.


Further Reading


South Africa's Post-Apartheid Microcredit-Driven Calamity: Comparing 'Developmental'to 'Anti-Developmental'Local Financial Models
papers.ssrn.com [PDF]
… in-Publication Data Cassidy, John, 1963– How markets fail : the logic of economic calamities /John Cassidy … In Part I, I trace the story of what I call utopian economics, taking it from … Within orthodox economics, beginning in the late 1960s, a new generation of researchers began …

Eugen Varga and the Calamity of Stalinist EconomicsEugen Varga and the Calamity of Stalinist Economics
www.tandfonline.com [PDF]
… in-Publication Data Cassidy, John, 1963– How markets fail : the logic of economic calamities /John Cassidy … In Part I, I trace the story of what I call utopian economics, taking it from … Within orthodox economics, beginning in the late 1960s, a new generation of researchers began …

E. Banks, The Palgrave Macmillan Dictionary of Finance, Investment and Banking© Erik Banks 2010E. Banks, The Palgrave Macmillan Dictionary of Finance, Investment and Banking© Erik Banks 2010
link.springer.com [PDF]
… in-Publication Data Cassidy, John, 1963– How markets fail : the logic of economic calamities /John Cassidy … In Part I, I trace the story of what I call utopian economics, taking it from … Within orthodox economics, beginning in the late 1960s, a new generation of researchers began …

Confronting the retirement funding calamity: A Christian perspectiveConfronting the retirement funding calamity: A Christian perspective
cbfa-cbar.org [PDF]
… in-Publication Data Cassidy, John, 1963– How markets fail : the logic of economic calamities /John Cassidy … In Part I, I trace the story of what I call utopian economics, taking it from … Within orthodox economics, beginning in the late 1960s, a new generation of researchers began …

The ultimate calamity scenario in US arts funding: eliminating the national endowment for the artsThe ultimate calamity scenario in US arts funding: eliminating the national endowment for the arts
www.tandfonline.com [PDF]
… in-Publication Data Cassidy, John, 1963– How markets fail : the logic of economic calamities /John Cassidy … In Part I, I trace the story of what I call utopian economics, taking it from … Within orthodox economics, beginning in the late 1960s, a new generation of researchers began …



Q&A About Calamity Call


What does it mean if the cash flow generated by the underlying collateral is not enough to support scheduled principal and interest payments?

If cash flow from the underlying collateral is not enough, then the issuer must retire a portion of the CMO issue.

Why are the causes of the Great Depression being debated?

Because it is a complex issue.

What was one cause of the Great Depression?

A stock market crash.

What does "depression" mean in economics?

A severe, prolonged depression with high bankruptcy rates and high unemployment (such as during the 1930s).

What are two other types of protection used in CMOs besides overcollateralization and pool insurance?

Calamity Calls and pool insurance.

What is the Holy Grail of macroeconomics?

The causes of the Great Depression.

What is a Calamity Call?

A Calamity Call is a call feature of a Collateralized Mortgage Obligation (CMO) designed primarily to reduce the issuer's reinvestment risk.

Why would you use calamity calls instead of overcollateralization which may be enough to provide sufficient protection to underlying pools of conventional fixed-rate mortgages?

Because they can be used in CMOs structured from second lien mortgages, where there is more limited protection against default losses. This is in contrast to overcollateralization which may be enough to provide sufficient protection to underlying pools of conventional fixed-rate mortgages.

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