August was a tale of two mortgage trends, with rate locks for rate-and-term refinances soaring 69.8% while purchase locks dropped 9.8% month over month, according to the latest mortgage data report from Optimal Blue.
Those divergent trends contributed to a 1.8% monthly decline in total rate lock volume, which is an agreement between a borrower and a lender that the interest rate on a loan will remain fixed during the loan processing period.
The 30-year fixed-rate mortgage averaged 6.56% for the weekly period ending Aug. 28, according to Freddie Mac, after hitting 6.75% in mid-July. That dip was enough to convince many borrowers to refinance, observed Mike Vough, head of corporate strategy at Optimal Blue.
“Borrowers are responding quickly to rate improvements, driving the strongest month for rate-and-term refinances we’ve seen this year,” Vough said in a press release. “At the same time, purchase activity is beginning its typical seasonal decline, while product mix is shifting, with non-QM lending at record levels.”
Non-qualified mortgage (non-QM) volume reached a record high in August, accounting for 8.34% of total originations, up from 8.03% in July.
In terms of the income verification mix for non-QM loans — which offer more flexible income criteria than conventional loans eligible for purchase by Fannie Mae and Freddie Mac — debt-service coverage ratio (DSCR) verification accounted for 28.5% of non-QM rate locks in August, down slightly from a 28.7% share in July. Bank statement loans clocked in at 31.9% compared to 33.7% the prior month, while all other income verification methods accounted for the remaining 39.6% of non-QM volume versus 37.6% in July.
Nonconforming loans, which include non-QM and jumbo loans with balances exceeding Fannie and Freddie’s limits, rose to 17.3% of all mortgage rate locks in August, a 48-basis-point increase from July. Conforming loans eligible for purchase by Fannie and Freddie accounted for 51% of the loan mix versus 52.2% the prior month.
The Optimal Blue report also noted a shift in capital markets execution of loan sales in August, “highlighting stronger securitization activity among larger lenders.” Cash window deliveries of loans to Fannie and Freddie fell to 24% from 26% in July, while agency swaps for mortgage-backed securities climbed to 40% from 37% the previous month.
“This trend underscores how lenders are strategically adapting to optimize execution in order to gain market share,” Vough commented. “We’re seeing deeper engagement in securitization alongside more loans sold to the highest price during loan sales, signaling that capital markets strategies are adjusting to increase profitability.”
