fallout risk

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.