Secondary-market commitment with a firmer lender obligation to deliver mortgage loans or securities.
A mandatory commitment is a secondary-market commitment with a firmer lender obligation to deliver mortgage loans or securities.
Mandatory commitment matters because it helps explain how lenders manage price risk after quoting and locking borrower loans. The lender may be obligated to deliver loans or securities even if individual borrower behavior changes.
It also matters because this secondary-market execution is separate from the borrower’s note terms. The borrower does not become responsible for the lender’s delivery obligation, but that obligation can affect how the lender manages locks, pricing, and pipeline risk.
Borrowers usually do not see mandatory commitment language in ordinary closing documents. They see the borrower-facing rate, lock period, and loan terms.
The term becomes useful when explaining why lenders are disciplined about lock expirations, loan changes, and timely closing. Behind the scenes, the locked pipeline may be connected to commitments that must be managed carefully.
| Term | Main distinction |
|---|---|
| Best-Efforts Commitment | Usually tied more directly to whether a specific loan closes |
| Mandatory commitment | Creates a firmer delivery obligation for the lender |
| To-Be-Announced (TBA) Market | Broader agency MBS forward market connected to lender pricing and hedging |
A lender locks a group of loans and uses a mandatory execution to manage secondary-market pricing. If some loans change or fail to close, the lender still has a delivery obligation to manage.
Mandatory commitment differs from Best-Efforts Commitment because mandatory execution places a stronger delivery burden on the lender.
It differs from Rate Lock because rate lock is the borrower-facing rate agreement, while mandatory commitment is part of the lender’s investor or market execution.
It also differs from Loan Sale because a commitment sets up a future delivery or sale obligation, while the loan sale is the actual transfer.