Mortgage Fallout


DEFINITION of 'Mortgage Fallout'

A term used to describe the percentage of loans that do not close in a mortgage originator's pipeline. Mortgage originators adjust the fallout assumptions used in their hedge ratios as interest rates change relative to the loans they have in their pipelines.

BREAKING DOWN 'Mortgage Fallout'

At the same time or shortly after a borrower locks in a mortgage rate with a mortgage lender, the lender typically lays off the risk that current interest rates might change relative to the interest rate given the borrower by putting on a hedge. The hedge is designed to last until the mortgage closes, at which point the mortgage can be sold into the secondary mortgage market and the hedge unwound. However, many loans that are locked in by borrowers do not end up closing. The percentage of loans that do not close after being locked is called fallout. Fallout assumptions are an important part of a mortgage lender's hedging efficiency.

  1. Hedge Ratio

    1. A ratio comparing the value of a position protected via a ...
  2. Fallout Risk

    The lending risk that occurs when the terms of a loan are confirmed ...
  3. Mortgage Pipeline

    Mortgage loans that have been locked in with a mortgage originator ...
  4. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  5. Encumbrance

    A claim against a property by a party that is not the owner. ...
  6. Maturity

    The period of time for which a financial instrument remains outstanding. ...
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