Affordability constraints tamped down mortgage activity in July, though non-qualified mortgage (non-QM) volume reached a milestone last month, accounting for a record 8% of total mortgage rate locks.
That’s according to Optimal Blue’s latest mortgage data report, which found that total rate lock volume dipped 3% month over month, with purchase activity falling nearly 5%. An indicator of mortgage demand, a rate lock is an agreement between a borrower and a lender that the interest rate on a loan will remain fixed during the loan processing period.
Mike Vough, head of corporate strategy at Optimal Blue, observed in a press release that year-to-date purchase activity is about in line with 2024’s numbers, which is “generally a disappointment to the industry based on 2025 projections.”
But refinances saw a resurgence last month, with cash-out and rate-and-term refinance locks seeing respective increases of 5% and 7%. Vough attributed the rate-and-term refinancing gains to borrowers responding to “even modest rate improvements,” while the cash-out volume increase indicates some borrowers “may be undergoing some financial stress” and need a cash source.
Vough sees the uptick in non-QM loans reflecting a “market shift toward nontraditional financing solutions as borrowers seek flexible qualification paths.”
Non-QM loans do not need to meet the stricter criteria set by the Consumer Financial Protection Bureau for purchase by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac or the federal government. For example, a self-employed borrower may be able to obtain a non-QM loan with 1099s or bank account statements instead of traditional W-2 income documentation.
According to Optimal Blue, conforming loans eligible for purchase by Fannie and Freddie accounted for 52.2% of all mortgage rate locks in July, a 0.78% decrease from June. Nonconforming loans — which include non-QM and jumbo loans with balances exceeding the GSE limits — rose 62 basis points to a 16.8% rate lock share.
Optimal Blue ascribes the shift toward nontraditional financing in part to increased borrower debt and a growing openness among lenders to pursue alternative forms of income verification.
