Suppose that a mortgage bank "locked in" an interest rate for a prospective borrower at 8.5%. However, prior to the loan closing, the market mortgage rate falls to 7.5 %. In this scenario, the mortgage banker would be most concerned with which of the following risks?

Question

Quizplus · Accepted Answer

Fallout risk is the concern here because it refers to the risk that a borrower will not close their loan at the initially agreed-upon terms due to changes in interest rates. If the market rate falls, as in this scenario, borrowers might seek better terms elsewhere or renegotiate, leading to potential losses for the lender.

Suppose That a Mortgage Bank "Locked In" an Interest Rate