My understanding is that they group the owners together, then issue CDOs such that some are paid before others. Those which are paid last have the highest risk,

My understanding is that they group the owners together, then issue CDOs such that some are paid before others. Those which are paid last have the highest risk, but the largest rate of return. If you believe house prices are safer than the rest of the market does, you'd buy the high return high risk CDOs. It's also my understanding that they aren't issued on a geographical basis (beyond the country or state level). However, that's not to say they can't be, if investors take interest in distinguishing rural and urban mortgages.