Pipeline Risk

From Open Risk Manual
Revision as of 16:39, 11 September 2019 by Wiki admin (talk | contribs) (Created page with "== Definition == Pipeline Risk denotes a specific type of price risk that may occur in the process of Financial Product origination, where the terms of the contract may ha...")
(diff) ← Older revision | Latest revision (diff) | Newer revision → (diff)

Definition

Pipeline Risk denotes a specific type of price risk that may occur in the process of Financial Product origination, where the terms of the contract may have been agreed but the client still has the option not to close the transaction[1]

Mortgage Pipeline Risk

When a retail borrower submits a loan application, a mortgage bank normally grants them the option of “locking in” the rate at which the loan will close in the future. The lock-in period commonly runs for up to 60 days without a fee. If the borrower decides not to lock-in at the current established rate, the loan is said to be “floating.” Locked in pipeline commitments subject the bank to Price Risk, while floating rate commitments do not.

References

  1. Mortgage Banking, Comptroller's Handbook, 1998