Banking:
- lender's agreement to fund a commercial loan, installment loan, or mortgage loan at a quoted rate for a specific period of time. Called a lock-in period in mortgage lending. A commitment feeis often required; is usually forfeited if the borrower does not take the loan.
- in the secondary mortgage market, a lender's agreement to sell loans to a buyer in a specific future time period. Secondary market buyers, such as Fannie Mae or Freddie Mac, buy loans with a 60- to 120-day forward delivery. See also going long; going short.
in securities underwriting, arrangement whereby investment banker make outright purchases from the issuer of securities to be offered to the public; also called firm commitment underwriting.
Lending: term used by lenders to refer to an agreement to make a loan to a specific borrower within a specific period of time and, if applicable, on a specific property.See also commitment fee.
Securities underwriting: arrangement whereby investment bankers make outright purchases from the issuer of securities to be offered to the public; also called firm commitment underwriting. The underwriters, as the investment bankers are called in such an arrangement, make their profit on the difference between the purchase price- determined through either competitive bidding or negotiation-and the public offering price. Firm commitment underwriting is to be distinguished from conditional arrangements for distributing new securities, such as standby commitments and best efforts commitments. The word underwriting is frequently misused with respect to such conditional arrangements. It is used correctly only with respect to firm commitment underwritings or, as they are sometimes called, bought deal. See also best effort; standby commitment.
an irrevocable agreement that commits one of the parties to perform a certain act; most common in reference to commitments by lenders to provide financing.
Example: Good Money Bankers made a firm commitment to finance a shopping center that had been preleased.
