What is a buyback obligation and how does it work?

A buyback obligation is a credit enhancement given by the lending company or other entity of a lending company group to the investor for a particular loan. If the loan is more than 60 days late, the lending company is obligated to buy back the investment at nominal value plus accrued interest. Usually, this means investors will be able to recover their investment in case of a borrower default.

While there's no action needed from investors, the buyback process may take a while, depending on the lending company. If the lending company defaults on its contractual buyback obligation, the obligation might not be executed in a way that investors receive the money.

The buyback obligation is given at the loan level and is marked by a shield ().