Mortgage fallout refers to mortgage applications that fail to close for one reason or another.

This indicator is usually expressed as a percentage.

The reasons why borrowers withdraw are immaterial as the objective is to measure a loan originator’s efficiency.

An originator might be the lender itself, mortgage brokers who’ve become correspondent lenders, smaller lenders, etc.

Once a loan applicant submits the application form with required documents and an interest rate is locked in, the prospect is now in the lender’s pipeline.

And an applicant can have various reasons to back away including:

  • The real estate transaction has fallen through and failed to materialize
  • Borrower have discovered a more attractive housing loan package offered by another lender
  • Loan officer failed to follow up leading to borrower seeking help elsewhere
  • Taking bad advice from friends who have no clue what is going on
  • Borrower failing to sell the current house to fund the new purchase
  • Interest rates have fallen making it ridiculous to accept the loan being offered
  • etc

From a sales perspective, a customer that has advanced to this stage of the borrowing process means that the biggest obstacles to closing have already been smashed.

Failing to close at this point don’t just make originators look bad as a sales team, but also have implications for the lender.

Because once an interest rate is locked, fluctuations in interest rate can still occur between the time of the lock and the time of closing.

To protect themselves, lenders place hedges for good measure.

Failure to complete the deal would mean that the lender has exhausted it’s resources for nothing.

This is why calculating fallout risk plays an important role in optimizing business operations to minimize costs.