This content is about investing in Notes, financial instruments backed by loans. For information on investments in loans by means of assignment agreements go to What is a buyback obligation and how does it work for investments in loans by means of assignment agreements?.
A buyback obligation is a credit enhancement given by the lending company or other entity of a lending company group to the issuer for a particular loan. It can be looked at as a guarantee. If the loan is more than 60 days late, the lending company has to buy back the loan from the issuer at nominal value plus accrued interest. Usually, this means that the investors will receive proceeds from the Notes for a loan that is late even 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’s ability to honor its obligation. If the lending company defaults on its buyback obligation, investors may not receive the money.
Each Set of Notes whose pool of loans comes with a buyback obligation is marked by a shield ().