What risk do mortgage bankers face between the interest rate lock and the loan sale?

Mortgage bankers face pipeline risk between the interest rate lock and the loan sale because this period involves the time between when a borrower locks in an interest rate and when the loan is actually sold to an investor. During this time, mortgage bankers are exposed to fluctuations in interest rates. If rates rise, the value of the loans locked in at a lower rate may decrease, which can lead to losses if they cannot sell the loans at an appropriate price later. This uncertainty and potential financial impact is what defines pipeline risk; it directly relates to the mortgage banker’s ability to manage the loan pipeline effectively in the context of changing market conditions.

Understanding pipeline risk is crucial for mortgage bankers as it directly affects their profitability and their ability to meet the expectations of both borrowers and investors. Effective management of this risk often involves strategies such as hedging, which can help mitigate the impact of interest rate movements during this locking and sale period.