fallout risk
Definition
Probability that a prospective borrower will not complete a mortgage loan transaction and will 'fall out' of it. High fallout risk is usually created when the finalization of the mortgage deal is contingent upon another deal such as the sale of a property. If the deal does not go through, it is said to have fallen out of the lender's pipeline of loans. Banking practices require that the offered mortgage interest rate must be held for 60 days or more while the borrower is under no obligation (but has the right) to consummate the deal. The lender thus has to hedge against the possibility of a market interest rate increase in the interim through means such as a put option.
Use fallout risk in a sentence
“ You should try and calculate your fallout risk and figure out if it will be worth your time and resources. ”
“ Prior to determining if a customer is qualified for a loan, the loan officer must determine the fallout risk of that particular customer. ”
“ FALLOUT RISK A type of mortgage pipeline risk that is generally created when the terms of the loan to be originated are set at the same time the sale terms are established. The risk is that either of the two parties, borrower or investor, fails to close and the loan "falls out" of the pipeline. ”
