Rep and warranty (R&W)
Asset-Backed Securities glossary · Asset Backed Securities
Definition
Sponsor/seller representations about loan-level characteristics at closing; breaches trigger mandatory repurchase of the affected receivable at par.
Rep and warranty (R&W) in plain English
When a lender bundles up thousands of loans and sells them to investors, the investors can't personally inspect every loan — so the seller makes a set of written promises about them: 'each borrower really exists, each loan met our credit rules, none were already in default,' and so on. Those promises are the reps and warranties. If one later turns out to be false — say a loan was junk that never should have been included — the seller is forced to buy that bad loan back at full price (at par), so the investors don't eat the loss. Think of it like a 'no lemons' guarantee on a used car: if the seller swore the engine was fine and it wasn't, they have to take it back and refund you.
Also called: R&W
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