The issuer of the CMO, as a legal entity, is the legal owner of a pool of mortgages which are purchased from banks and mortgage companies. Prior to the advent of repackaging mortgages, a borrower would visit his local bank who would lend out money for the purchase of a home. The bank would then hold the mortgage using the house as collateral until it was paid off or the house was sold. While some banks still hold mortgages on their books, the majority of mortgages are sold off soon after closing to third parties who repackage them. For the initial lender, this provides some sense of relief as they no longer own the loan or have to service the loan. These mortgages then become collateral and are grouped together with loans of similar quality into tranches (which are just slices of the pool of loans). By creating CMOs from a pool of mortgages, issuers can design specific, separate interest and principal streams in various maturity lengths to match investor’s needs with the cash flows and maturities they desire. For legal and tax purposes, CMOs are held inside a real estate mortgage investment conduit (REMIC) as a separate legal entity. The REMIC is exempt from federal tax on the income they collect from the underlying mortgages at the corporate level, but income paid to investors is considered taxable.