A type of risk that reflects the probability of 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.

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.