A type of risk that arises from the probability that a prospective borrower may fail to fulfill its mortgage loan obligations. It is the risk that a mortgage lender is exposed to when a borrower backs out of a mortgage loan after loan application is approved and before the closing.

In the mortgage pipeline, borrower fallout reflects the risk that prospective borrowers may choose to walk away, falling out or withdrawing from the contract. This risk particularly arises after borrowers have committed to close their respective loans, but elect not to proceed. A mortgage fallout constitutes the percentage of loans in a mortgage originator‘s pipeline that fails to close.

Fallout risk is a subcategory of mortgage pipeline risk that arises when the terms of a loan to be originated are defined at the same time the sale terms are established. It captures the risk that a borrower (or even either of the two parties: borrower or investor- borrower fallout or investor fallout) fails to close and the loan “falls out” of the pipeline (hence it is a component of pipeline risk, or at times both terms are used interchangeably). The other component of pipeline risk is known as price risk.

Borrower fallout is part of fallout risk.