PLANO, Texas—Nontraditional mortgage lending continued to expand in September despite sharply rising interest rates and declining overall mortgage activity, according to a new report from Optimal Blue that also found adjustable-rate mortgages reached their highest share of lending since at least 2019.
Optimal Blue’s September 2026 Market Advantage report found total mortgage rate-lock volume declined 2% from August, 21% over the preceding three months and 26% from a year earlier.
But non-qualified mortgage (non-QM) lending moved in the opposite direction, with rate-lock volume increasing 8% from August. Non-QM loans accounted for 12% of September production, reflecting growing demand for financing outside traditional conforming mortgage guidelines.
Meanwhile, the share of adjustable-rate mortgages (ARMs) climbed to 14% of total rate-lock volume, up from 10.5% in August and the highest level recorded in Optimal Blue’s Market Advantage data dating to 2019.
The findings suggest borrowers and lenders are increasingly turning to alternative mortgage products as conventional financing becomes more expensive.
Mortgage Rates Climb Sharply
According to Optimal Blue, mortgage rates increased across all major loan categories during September.
The company’s Optimal Blue Mortgage Market Indices (OBMMI) showed the 30-year conforming fixed mortgage rate ended the month at 7.39%, an increase of 67 basis points from August, 93 basis points over three months and 107 basis points from September 2025.
Other rates at the end of September included:
- 30-year jumbo mortgages: 7.36%.
- Federal Housing Administration mortgages: 7.10%.
- Department of Veterans Affairs mortgages: 7.08%.
- 10-year Treasury yield: 5.29%, an increase of 54 basis points during September and 113 basis points from a year earlier.
The spread between the 10-year Treasury yield and the 30-year conforming mortgage rate widened 13 basis points during September to approximately 210 basis points.
Brennan O’Connell, director of data solutions at Optimal Blue, said changes in the types of mortgages being originated are helping sustain purchase activity.
“What stands out in September is how much product mix is doing the work of keeping purchase activity moving,” O’Connell said.
He noted conforming mortgages lost market share while non-QM lending expanded and adjustable-rate mortgage usage reached a record level in the company’s reporting.
“That tells lenders there is still purchase demand to serve, but increasingly it may not fit neatly into the traditional conforming box,” O’Connell said.
Purchase Lending Shows Resilience
Despite higher borrowing costs, purchase mortgage activity remained comparatively stable.
Optimal Blue reported purchase rate-lock volume declined less than 1% both month over month and year over year, although it was down 20% over the preceding three months.
Purchase mortgages accounted for 82% of September rate locks, leaving refinancing with an 18% share.
Refinancing activity continued to weaken:
- Cash-out refinance volume declined 8% from August and 23% from a year earlier.
- Rate-and-term refinance volume dropped 13% month over month and 82% year over year.
- Purchase mortgage rate locks declined less than 1% from both August and September 2025.
The report also found the average locked mortgage amount increased more than 2% from August to approximately $397,000, approaching the $400,000 threshold despite lower overall lending volume.
Non-QM Lending Gains Ground
The report documented a significant shift away from conforming mortgage products.
Conforming loans accounted for 46% of September production, a decline of 71 basis points from August and more than 6 percentage points from a year earlier.
Nonconforming mortgages increased their share by 285 basis points during September to nearly 24%, approximately 7 percentage points higher than a year earlier.
Non-QM lending, which includes products designed for borrowers who may not meet conventional underwriting requirements, accounted for 12% of production.
That represented an increase of 117 basis points from August, 357 basis points over three months and 478 basis points from September 2025.
Within the non-QM category, Optimal Blue reported:
- Investor and debt-service coverage ratio loans accounted for 33% of activity.
- Bank statement loans represented 30%.
- Other expanded-guideline mortgage programs accounted for 37%.
FHA loans represented 18% of overall production, while VA mortgages accounted for 11%.
O’Connell said lenders’ opportunities in the current environment will increasingly depend on their ability to serve borrowers with different income, credit and payment circumstances.
First-Time Buyers Remain Active
Optimal Blue’s report also found first-time homebuyers continued to account for substantial portions of purchase lending.
First-time buyers represented approximately 44% of conforming purchase locks, 70% of FHA purchase locks and 46% of VA purchase locks.
The first-time buyer shares for FHA and VA mortgages increased modestly from August, while the conforming share declined approximately half a percentage point.
Other borrower characteristics included:
- Debt-to-income ratios: Average purchase ratios increased slightly to 37.1% for conforming loans, 44% for FHA loans and 43.8% for VA loans.
- Credit scores: The average credit score across all mortgage locks was approximately 731. Purchase borrowers averaged 736, cash-out refinance borrowers averaged 698 and rate-and-term refinance borrowers averaged 741.
- Loan-to-value ratios: The average remained slightly above 80%.
- Purchase pull-through: The share of locked purchase loans that proceeded to closing declined 270 basis points to 82.2%.
- Refinance pull-through: The corresponding refinancing measure increased 181 basis points to 74.6%.
New Construction, Property Types Show Limited Changes
The report found single-family detached homes accounted for approximately 64% of September mortgage production.
Planned unit developments, which Optimal Blue uses as a proxy for new-construction activity, represented 28% of volume.
That share declined modestly from August but was approximately 1 percentage point higher than a year earlier.
Condominiums accounted for nearly 6% of production.
Secondary Mortgage Market Adjusts to Higher Rates
Optimal Blue also reported significant changes in how lenders hedged mortgage pipelines and executed secondary-market loan sales.
The UM30 5.5 mortgage-backed securities coupon declined from 62% of hedges in August to 50% in September, while the UM30 6.0 coupon increased to 44%.
Mortgage-backed securities execution accounted for 47% of hedged loan sales, an increase of 385 basis points and the highest level since January 2026.
Other execution channels included cash sales at 29%, bulk execution at 22% and best-efforts execution at 2%.
Mortgage servicing rights for conforming 30-year loans increased just 1 basis point to 1.39%, representing a 5.57 multiple, even as the average 30-year conforming mortgage rate increased 32 basis points during the month.
The share of loans sold at the highest price tier increased to 78%, while the share of loans sold with servicing retained slipped from 57% in August to 56% in September.
“The rapid shift from the 5.5 to the 6.0 coupon shows how quickly lenders repositioned their hedges as rates moved higher,” said Mike Vough, Optimal Blue’s senior vice president of corporate strategy.
Vough said servicing values, retention rates and execution spreads did not necessarily move in the same direction as mortgage rates, requiring lenders to closely monitor pipeline risks and secondary-market pricing.
Optimal Blue Forecasts Further Mortgage Rate Increases
Looking ahead, Optimal Blue’s Virtual Economist forecasting model projects mortgage rates will continue rising over the next 12 months.
The company also expects the primary secondary mortgage spread to widen from 0.95% to approximately 1.06% over the next month before remaining near that level over the following year.
O’Connell attributed the outlook to September’s rate increases, Federal Reserve indications of additional interest rate hikes and recent increases in gross domestic product, oil prices and disposable income.
The projections suggest mortgage lenders could face continued pressure on refinancing activity while purchase borrowers increasingly consider adjustable-rate and alternative financing products.
About the Report
Optimal Blue said its monthly Market Advantage report draws on direct-source mortgage rate-lock data, secondary-market transactions and forward-looking forecasts.
The company’s product and pricing engine is used to price and lock more than one-third of all mortgages nationwide, while its hedging and loan trading system supports approximately 40% of loans hedged and sold into the secondary market.
