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.

RELATED TERMS
  1. Fallout Risk

    The lending risk that occurs when the terms of a loan are confirmed ...
  2. Mortgage Originator

    A mortgage originator is an institution or individual that works ...
  3. No-Cost Mortgage

    A mortgage refinancing situation in which the lender pays the ...
  4. Second Mortgage

    A type of subordinate mortgage made while an original mortgage ...
  5. Third-Party Mortgage Originator

    1. A person or company involved in the process of marketing mortgages ...
  6. Mortgage Banker

    A company, individual or institution that originates mortgages. ...
Related Articles
  1. Personal Finance

    Behind the Scenes of Your Mortgage

    Four major players slice and dice your mortgage in the secondary market.
  2. Personal Finance

    Mortgage Company

    A company engaged in the business of originating and/or funding mortgages for residential or commercial property.
  3. Personal Finance

    Reduce Interest With An All-In-One Mortgage

    "Offset" mortgages combine a checking account, home-equity loan and mortgage into one account.
  4. Investing

    Financial Institutions: Stretched Too Thin?

    Find out how to evaluate a firm's loan portfolio to determine its financial health.
  5. Personal Finance

    Score a Cheap Mortgage, Here’s How

    Hidden costs can create what looks like a good deal. Find out how to find the best mortgage possible.
  6. Personal Finance

    How to Find the Best Refinance Companies

    From traditional lenders to online loans, here's everything you need to know about refinancing your mortgage.
  7. Personal Finance

    What The New Mortgage Lending Rules Really Mean

    Every mortgage rule change has consequences for borrowers, lenders, the housing market and the broader economy.
  8. Investing

    The Most Important Factors that Affect Mortgage Rates

    Discover what the most important factors are that affect mortgage interest rates. Factors range from inflation and economic growth to Federal Reserve activity, .
  9. Financial Advisor

    Reverse Mortgages: Right for Clients? Not Often

    Reverse mortgages are a legitimate vehicle for folks age 62 and up to tap into the equity in their homes for other uses. Here's what to consider with them.
RELATED FAQS
  1. What’s the Difference Between a Mortgage Lender and a Mortgage Servicer?

    Buying a home is an exciting and confusing process. Once the loan is secured, it's important to know who gets the payment: ... Read Answer >>
  2. What are the pros and cons of a simple-interest mortgage?

    Learn the difference between a simple interest mortgage and a standard mortgage, along with their relative advantages and ... Read Answer >>
  3. What is an assumable mortgage?

    The purchase of a home is a very expensive undertaking and usually requires some form of financing to make the purchase possible. ... Read Answer >>
Trading Center