(MONEY Magazine) – In spite of the chastening recent history of Ginnie Maes, income-oriented investors are being touted onto a newer, assertedly more predictable form of mortgage-backed security that is called a collateralized mortgage obligation, or CMO. The big selling point for CMOs is that they are high-yielding products that are much cheaper and a potentially steadier income source than the $25,000 certificates issued by the Government National Mortgage Association (GNMA). CMOs, available at brokerage houses in minimum denominations of $1,000, currently yield between 8% to 10% compared with 7% to 9% for Treasury bonds of comparable maturity. A CMO thus offers about the same rate as Ginnie Maes but, unlike them, isn't directly linked to the cash flow in the huge pools of home loans insured against default by a federally chartered agency. Rather, a CMO is a form of bond floated by a private issuer -- an investment bank, thrift or the financing arm of a home builder -- using mortgages, government backed and otherwise, as collateral. (A variation of the CMO is marketed under the name REMIC -- for real estate mortgage investment conduit.) Like a Ginnie Mae, a CMO delivers you regular payments of interest and principal -- only not monthly but quarterly or semiannually like a bond. The CMO has been structured as a bond in hopes of protecting investors against the major drawback of traditional mortgage-backed securities: earlier-than- expected repayment of principal. Last year, for example, when interest rates plummeted and homeowners rushed to refinance their high-rate mortgages, cash flooded the coffers of the U.S.-backed mortgage agencies and was promptly passed through to holders of their securities. Investors who had counted on long-term interest payments suddenly had cash on their hands -- and the need to reinvest just as rates were inopportunely low. CMO issuers aim to minimize this problem by creating the bonds with several separate maturity ranges such as two to five years, seven to 12 years and 15 to 20 years. The longer the term, the higher the yield. Each group is called a tranche, from the French word for slice. Mortgage prepayments initially flow into the first tranche, which usually is earmarked for institutional investors. The later tranches are thereby somewhat cushioned from prepayment and are likelier to give you your hoped-for yield over the CMO's full term. Still, the term is much more flexible with a CMO than with, say, a typical corporate or Treasury bond. Brokers speak not of a CMO's maturity but of its ''weighted average life.'' There are also some minuses about CMOs. They are a relatively new, untested product, and though a sizable market has developed, you can't unload a CMO as readily as a Treasury bond or a Ginnie Mae. CMO bonds are also not fully government backed but are usually rated AAA. If you would prefer to enter the brave new world of CMOs with professional guidance and are willing to pay for it, a new closed-end mutual fund including CMOs is in registration from Houston's Criterion family (800-231-4645).