Calamity Call

Also known as a cleanup call, calamity calls are included in securities backed by mortgage pools called collateralized mortgage obligation (CMO). The calamity call is designed to protect the investors in the event of, well, a calamity.

Investors buy into the CMO as a way to access the profit from mortgages (assuming the payments are made on time and in full) without having to write the mortgages themselves. If those payments stop or the mortgages are defaulted on, the investors not only lose out on any profits, they could lose what they initially invested. In this case, the issuer cancels a portion of the CMO.

This escape clause is sort of a defensive mechanism to protect investors. Adding things like the calamity clause to CMOs also provided a way to lure investors back in after the housing market collapse in 2008 (which led to a meltdown in the CMO market, and a near-meltdown of the economy generally). This protective feature reassures investors that if profits start to drop, and their investment is at risk, they'll be pulled out of it before the damage gets too bad.