What does a fallout risk refer to in mortgage banking?

A fallout risk specifically refers to the possibility that a borrower may decide not to proceed with a mortgage after they have locked in an interest rate. This situation typically occurs after an applicant agrees to a rate for a loan but subsequently changes their mind, which can be due to various reasons such as selecting a different lender, improved credit conditions elsewhere, or personal financial changes.

This risk is significant for lenders as it can lead to lost opportunities and potential revenue, as they may have to sell the mortgage at a higher rate than what they would have received if the loan had closed as planned. Understanding fallout risk is crucial for lenders, as it directly impacts their ability to accurately project their pipeline of loans and revenue.

In this context, while the other options mention various factors related to mortgage banking, they do not accurately represent the specific definition of fallout risk, which is centered around the applicant's decision to withdraw after a rate lock.