Fallout is a term used to describe loan applications that are withdrawn by borrowers, sometimes because they have found a better deal or the percentage of loans that do not close in a mortgage originator's pipeline.

Mortgage originators change the fallout assumptions used in their hedge (a way that a lender can protect against the risk that a prospective borrower will reject a mortgage quote during an agreed period) ratios as interest rates change relative to the loans they have in their pipelines. The same time the loan is submitted or shortly after a borrower locks in a mortgage rate with a mortgage lender, the lender typically lays off the risk that current interest rates might change in relation to the interest rate given the borrower by putting on a hedge.

The hedge is intended to last until the mortgage closes, at which point the mortgage can be sold into the secondary mortgage market and the hedge unwound. Nevertheless, many loans that are locked in by borrowers do not end up closing. Fallout assumptions are an important part of a mortgage lender's hedging effectiveness.