Key facts
- Non-QM lending volume rose 8% in September.
- Total mortgage rate-lock volume decreased 2% month-over-month.
- Non-QM loans represented 12% of September production, up from previous periods.
- Adjustable-rate mortgages (ARMs) reached a record 14% share of total rate locks.
- The 30-year conforming fixed mortgage rate was 7.39% at the end of September.
- The 10-year Treasury yield closed September at 5.29%.
Nonqualified mortgage (non-QM) lending continued to expand in September, with rate-lock volume increasing 8% from August, according to Optimal Blue’s Market Advantage report. This growth occurred as overall mortgage origination activity declined 2% month-over-month and 26% year-over-year, driven by rising mortgage rates.
Non-QM loans constituted 12% of September production, an increase from both the previous month and the prior year. The report noted that total rate-lock volume had fallen 21% over the preceding three months as mortgage rates climbed.
The 30-year conforming fixed mortgage rate tracked by Optimal Blue ended September at 7.39%, a rise of 67 basis points from August and 107 basis points from a year earlier. Other loan types also saw increases, with the 30-year jumbo rate at 7.36%, and FHA and VA loan rates at 7.10% and 7.08%, respectively.
Brennan O’Connell, director of data solutions at Optimal Blue, highlighted that product mix was crucial for maintaining purchase activity. He observed that while conforming loans lost market share, non-QM volume grew, and the usage of adjustable-rate mortgages (ARMs) reached its highest level in the report's data series, which dates to 2019. This suggests that lenders are serving purchase demand that may not fit traditional conforming loan criteria.
Purchase rate-lock volume saw a slight decline of less than 1% month-over-month and year-over-year, representing 82% of September's production, while refinance activity dropped to 18%. Both cash-out and rate-and-term refinance volumes declined significantly compared to August and the previous year.
ARMs accounted for 14% of total rate-lock volume, up from 10.5% in August. The composition of mortgage production also shifted away from conforming loans, which made up 46% of production, down from August. Nonconforming loans, conversely, increased to nearly 24% of production.
Within the non-QM market, investor and debt-service-coverage ratio loans comprised 33% of activity, followed by bank-statement loans at 30%, and other expanded-guideline programs at 37%.
Optimal Blue’s Virtual Economist forecasts continued mortgage rate increases over the next 12 months, projecting the 30-year conforming fixed rate to reach 7.66% in the next month, 7.80% in three months, and 7.85% in 12 months. This projection is based on September’s rate hikes, the Federal Reserve’s indications of further rate increases, and rising GDP, oil prices, and disposable income.
The 10-year Treasury yield also rose, ending September at 5.29%, up 54 basis points from August and 113 basis points year-over-year. The spread between the Treasury yield and Optimal Blue’s 30-year conforming mortgage rate widened by 13 basis points to approximately 210 basis points.
In the secondary market, lenders adjusted their hedging strategies towards higher mortgage-backed securities coupons. The share of hedges using the 5.5% coupon for 30-year MBS decreased, while the 6% coupon share increased. Mortgage-backed securities execution accounted for 47% of hedged loan sales, the highest share since January 2026.
Mortgage servicing rights for conforming 30-year loans saw a minimal increase despite rising rates. The share of loans sold with servicing retained slightly decreased from August.
Borrower metrics indicated an average credit score of approximately 731 across all rate locks in September, with purchase borrowers averaging 736, cash-out refinance borrowers averaging 698, and rate-and-term refinance borrowers averaging 741. Average locked loan amounts increased by over 2% from August to approximately $397,000.