What is a Mortgage Fallout?

Mortgage fallout is the percentage of an originator's mortgages that fail to close.

How Does a Mortgage Fallout Work?

A mortgage originator maintains a number of clients for whom it secures mortgages at competitive rates. To avoid the risk that interest rates will rise, mortgage originators apply a hedge to these mortgages until they have been approved and disbursed or closed. Once closed, the hedge is removed, and the mortgage is sold in the secondary market. Mortgage fallout is the percentage of open mortgages for which the hedge expires and do not close.

For example, suppose a mortgage originator has 30 open mortgages in its pipeline. If four of those open mortgages fail to close, the mortgage originator's mortgage fallout would be 13.3%.

Why Does a Mortgage Fallout Matter?

Mortgage fallout is a measure of a mortgage originator's efficiency. In addition, mortgage fallout is used to determine the level of risk incorporated into a mortgage originator's hedge ratio.