Also called a cleanup buyback, an option in securitization transactions in which the issuer may reduce its own administrative expenses by buying back the remaining issue when the principal has been reduced to an insignificant amount, usually to less than 10% of the original issue. This option is often exercised for mortgage-backed securities.
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Early redemption of the entire balance of a debt issue when a relatively small amount of the original issue remains outstanding. For example, mortgage-backed securities are gradually paid down as mortgages backing the bonds are paid off by homeowners. At some point the issuer of the mortgage-backed securities may decide to reduce its own administrative expenses by calling the balance of the issue.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.