PLANO, Texas — Mortgage activity weakened in August even as borrowing rates stabilized, with total rate-lock volume falling 9% from July and 3% from a year earlier, according to new data from Optimal Blue.
Purchase mortgage locks declined 10% month over month but remained 6% above August 2025 levels, Optimal Blue said in its August Market Advantage mortgage data report. Purchase loans accounted for nearly 81% of all rate-lock volume.
Refinancing remained particularly weak. Rate-and-term refinance volume dropped 13% from July and 47% from a year earlier, while cash-out refinance volume declined 3% for the month and 5% year over year. Refinances represented more than 19% of total production.
“After a sharp move higher in July, rates leveled off in August, but that pause didn’t translate into stronger volume,” Brennan O’Connell, director of data solutions at Optimal Blue, said in a statement.
O’Connell said purchase activity continues to outperform last year, but the steep decline in rate-and-term refinancing is leaving the broader mortgage market with little support from refinance demand.
“With rates still elevated and our 12-month forecast pointing to only gradual relief, the market remains highly sensitive to even modest changes in borrowing costs,” he said.
30-Year Rate Holds at 6.72%
Optimal Blue said its 30-year conforming fixed mortgage rate ended August at 6.72%, unchanged from July but 23 basis points higher than a year earlier.
The 10-year Treasury yield remained at 4.75%, while the spread between the Treasury yield and the 30-year conforming mortgage rate held at 197 basis points. That spread was nearly 30 basis points tighter than a year earlier, helping offset some of the effects of higher Treasury yields.
The average mortgage rate locked through Optimal Blue’s product, pricing and eligibility engine was 6.48%.
Optimal Blue forecasts the 30-year conforming rate will rise slightly to 6.74% over the next month and 6.82% over three months before declining to 6.51% over the next 12 months.
FHA Share Gains, Conforming Declines
The composition of mortgage production also continued to shift in August.
Conforming mortgages accounted for 47% of production, down 38 basis points from July and more than 4 percentage points from a year earlier.
FHA’s share increased 74 basis points to nearly 20%, while VA loans declined 44 basis points to nearly 12%. Non-conforming loans represented nearly 21% of production.
Non-qualified mortgages continued to gain ground, accounting for more than 11% of total lock volume, up 1 percentage point from July and 3 percentage points from a year earlier. Investor and debt-service coverage ratio loans accounted for more than 35% of non-QM production, while bank-statement loans represented nearly 30%.
Adjustable-rate mortgages accounted for 10.5% of locks, down 55 basis points from July but slightly above their year-earlier share.
Credit Scores Remain Strong
Borrower credit quality remained relatively strong, according to Optimal Blue.
The average credit score across all rate locks was 729. Purchase borrowers averaged 734, while borrowers seeking rate-and-term refinances averaged 738. Cash-out refinance borrowers had an average score of 697.
Conforming borrowers had an average credit score of 752, compared with 677 for FHA borrowers and 714 for VA borrowers.
The average locked loan amount declined nearly 2% to $388,000 from $395,000 in July.
First-time homebuyers accounted for 44% of conforming mortgages, 70% of FHA loans and 45% of VA loans, all unchanged from July.
Secondary-Market Measures Mixed
Optimal Blue also reported a mixed picture in the secondary mortgage market.
Mortgage servicing rights for conforming 30-year loans increased 4 basis points to 1.38%, while the share of loans sold at the highest price tier declined to 77%.
The share of loans sold with servicing retained climbed 4 percentage points to 57%, rebounding from 53% in June and July.
“We saw a mixed secondary-market picture in August, with tighter execution spreads and higher MSR values alongside some deterioration in top-tier execution share,” said Mike Vough, Optimal Blue’s senior vice president of corporate strategy.
The Dominant Hedge
Vough said the UM30 5.5 remained the dominant hedge even though actual mortgage production was more broadly distributed between 5.5% and 6% coupons, a difference he said bears watching.
Optimal Blue said its Market Advantage report draws on data from its product, pricing and eligibility platform, which is used to price and lock more than one-third of U.S. mortgages, and its hedging and loan-trading system, which supports approximately 40% of mortgages hedged and sold into the secondary market.
