Key facts
- Total mortgage rate-lock volume declined 9% in August from July.
- Purchase lock volume decreased 10% month-over-month.
- Refinance activity remained weak, with rate-and-term refis down 13% from July.
- The 30-year conforming fixed mortgage rate was 6.72% in August, unchanged from July.
- The spread between the 10-year Treasury yield and the 30-year mortgage rate was 197 basis points.
- Non-QM loans represented over 11% of total lock volume in August.
Mortgage activity saw a decline in August, with total rate-lock volume falling 9% from July and 3% year-over-year, according to Optimal Blue's Market Advantage report. This occurred even as mortgage rates stabilized. Purchase lock volume decreased by 10% month-over-month but remained 6% higher than August of the previous year, accounting for nearly 81% of total lock volume.
Refinance activity continued to be weak. Rate-and-term refinance volume dropped 13% from July and 47% from a year prior, while cash-out refinance volume saw a 3% month-over-month decrease and a 5% year-over-year decline. Refinances constituted over 19% of total production, an increase of 40 basis points from July.
Brennan O’Connell, director of data solutions at Optimal Blue, noted that the stabilization of rates in August did not lead to stronger volume. He highlighted that while purchase activity is ahead of last year, the significant drop in rate-and-term refinance volume is limiting overall market support.
The 30-year conforming fixed rate ended August at 6.72%, unchanged from July but 23 basis points higher than the previous year. The 10-year Treasury yield held steady at 4.75%, resulting in a spread of 197 basis points between the Treasury yield and the mortgage rate. This spread was nearly 30 basis points tighter than a year ago, partially mitigating the impact of higher Treasury yields.
Optimal Blue projects the 30-year conforming mortgage rate to slightly increase to 6.74% in the next month and 6.82% in three months, before easing to 6.51% over the next 12 months. Conforming loans made up 47% of production in August, a decrease from July and the prior year. Nonconforming loans accounted for nearly 21%, FHA loans rose to nearly 20%, and VA loans declined to nearly 12%.
Non-qualified mortgage (non-QM) loans represented over 11% of total lock volume, an increase from both the previous month and year. Within non-QM production, investor and debt-service-coverage ratio (DSCR) loans comprised over 35%, with bank-statement loans making up nearly 30%. Adjustable-rate mortgages (ARMs) constituted 10.5% of lock volume, a decrease from July but slightly above year-ago levels.
The average locked loan amount decreased to $388,000 from $395,000 in July. The average credit score for all locks was 729, with purchase borrowers averaging 734. The pull-through rate for purchase loans improved to 84.9%, and refinance pull-through rose to 72.8%.
In the secondary market, execution spreads tightened for major products. The best-efforts-to-mandatory spread for conventional 30-year loans narrowed to 26 basis points, and the 15-year spread declined to 37 basis points. Mortgage servicing rights for conforming 30-year loans increased by 4 basis points to 1.38%. The share of loans sold with servicing retained rose to 57%. Mike Vough, Optimal Blue’s senior vice president of corporate strategy, noted a mixed secondary market picture with tighter spreads and higher MSR values, alongside some deterioration in top-tier execution share.