Ordered servicer review of mortgage workout options under investor or program rules.
A waterfall review is an ordered servicer review of mortgage workout options under investor, insurer, guarantor, or program rules.
Waterfall review matters because the servicer may not choose options randomly. The file may be reviewed through a sequence that tests whether the borrower qualifies for one option before moving to another.
It also matters because borrowers may receive an offer or denial based on rules they do not see in the application itself. Understanding the idea of a waterfall helps explain why income, hardship, property value, arrearage, and loan owner rules all matter.
Borrowers usually encounter waterfall review after submitting a loss mitigation package. The servicer evaluates the complete file and applies the relevant rule sequence to decide which workout options can be offered.
The term becomes practical when a borrower asks why one option was offered instead of another.
A borrower applies for help after a hardship. The servicer reviews whether reinstatement, repayment, deferral, modification, or other options fit the applicable waterfall before sending an offer or denial.
Waterfall review differs from Loss Mitigation Application because the application is what the borrower submits, while waterfall review is how the servicer evaluates available options.
It differs from Workout Option because the option is a possible outcome, while the waterfall is the review sequence.
It also differs from Loss Mitigation Offer because the offer may be the result of the review.