Agency mortgage locks slip as non-QM gains ground in June

Rate locks on mortgage loans eligible for sale to Fannie Mae and Freddie Mac accounted for less than half of total lock activity for the third straight month in June, according to updated market data published Thursday by Optimal Blue.

In contrast, nonconforming rate-lock share continued to climb, rising to 19.3% of activity in June from 18.7% the previous month and surpassing the 18.7% share of Federal Housing Administration commitments. Nonconforming or non-qualified mortgage (non-QM) locks were up 315 basis points from last June.

Persistent affordability challenges, amplified by weakened purchasing power since the start of the Iran war in late February, have driven a need for greater flexibility in borrower qualification, experts say, which the more rigid Fannie and Freddie channel lacks.

But on a broad basis in June, Optimal Blue’s snapshot of rate-lock activity indicating elevated borrowing costs and loan amounts that approached “near record highs” did not hinder annual momentum in borrowing activity.

“Purchase demand strengthened, refinance activity held up and pull-through improved after softening in May,” said Mike Vough, senior vice president of corporate strategy at Optimal Blue, in commentary accompanying the report. He said the trends show “a market that is battle tested and that has adapted” to an elevated mortgage rate environment.

Total lock volumes were 10% higher from May and 15% higher than a year ago, as average mortgage rates on 30-year fixed-rate loans ended the month at 6.45%, down 22 basis points year over year, according to Optimal Blue’s rate indexes. The company says its rate-lock data covers one-third of the U.S. mortgage market.

The growth in lock activity was supported by a 10% monthly and 14% yearly rise in purchase commitments, which totaled 81% of overall activity. Refinance locks rose 11% over the month and 10% over the year, but remained at May’s 19% share of activity.

Growth in non-QM channels was driven by a sharp uptick in locks for investor loans, which were 449 basis points higher than May and 720 basis points higher than a year ago during June. Lock share for bank statement loans fell 34 basis points, while the “all other” category on nonconforming products slid 415 basis points over the month.

Mortgage spreads widened in June, supporting higher mortgage rates that experts tell Scotsman Guide appear priced to move even higher amid inflationary pressures, federal deficit concerns and Federal Reserve changes under its new chair, Kevin Warsh.

In a sign of broadly improving affordability, however, Optimal Blue said debt-to-income ratios on purchase locks across all typical Fannie, Freddie and government loan products were below 2025 levels in June, despite higher home prices.