Fallout risk


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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.

Fallout Risk

In mortgages, the risk that a potential borrower (that is, a property buyer) will withdraw from the deal before it is finalized. Banking regulation requires that banks offering a given interest rate hold that rate for 60 days, during which the potential borrower is under no obligation to actually take out the mortgage loan. During that time, the bank usually makes preparations to sell the mortgage as a mortgage-backed security or as some other investment vehicle. If the potential borrower withdraws during those 60 days, the bank is exposed to the risk that it will lose out on the return it could have made from the MBS or other investment vehicle. Fallout risk is also called borrower fallout.
References in periodicals archive ?
Hedging and real-time pricing/locking are two of the best ways to dramatically boost revenue while increasing operational efficiencies, neutralizing interest-rate and fallout risk. Moving past best-efforts execution is a time-tested method for improving profitability, which, in today's market, using contemporary technology and services has become easier than ever.
Waiting for customer information not collected at the point-of-sale, credit verifications and appraisals results in longer cycle times, bloated processing pipelines, greater fallout risk and lower customer value.
On the outflow side, the buy price of the loan is 100.875, the hedge cost is 0.303 (much higher than for the other commitment because of the greater fallout risk).