Lenders respond to affordability pressures with loan product diversity and pricing strategies
PLANO, Texas /California Newswire – National News/ — Optimal Blue today released its July 2025 Market Advantage mortgage data report, which found a 3% month-over-month (MoM) drop in overall rate lock volume, led by a nearly 5% drop in purchase activity as affordability remained strained.
Mortgage rates rose MoM across all loan types. The OBMMI 30-year conforming fixed rate, the benchmark for CME Group’s Mortgage Rate futures, ended July at 6.72%, up 5 basis points (bps). FHA, VA and jumbo rates also ticked up, rising 3, 4 and 11 bps respectively to 6.50%, 6.33% and 6.89%.
While purchase volume held steady year-over-year (YoY), refinancing showed renewed strength in July. Cash-out and rate-and-term refinance locks rose 5% and 7% respectively, partially offsetting the broader softness in the purchase market.
“As we near the end of peak buying season, 2025 purchase activity has largely tracked with 2024,” said Mike Vough, head of corporate strategy at Optimal Blue. “With affordability still a major constraint, purchase volume in line with 2024 is generally a disappointment to the industry based on 2025 projections We’re seeing more cash-out (+27% annually) and rate-and-term (+13% annually) opportunities as borrowers with post-2022 loans respond to even modest rate improvements, and borrowers may be undergoing some financial stress based on cash-out increases.”
Non-QM lending reached a new milestone in July, accounting for 8% of total rate lock volume – the highest on record. At the same time, GSE-eligible originations fell to 52.2% and non-conforming lending rose to 16.8%, underscoring a market shift toward nontraditional financing solutions. This can be attributed to elevated rates, increased debt, growing openness to alternative forms of income verification, and conventional loan limits, which are prompting more borrowers to seek flexible qualification paths.
“There’s growing separation in the ways larger and smaller lenders are managing profitability,” Vough added. “We saw an uptick in agency MBS executions, insinuating more market share is going to depositories and large IMBs, alongside stronger bid-to-cover ratios, indicating lenders are chasing the highest price over other execution considerations. Combined with deeper engagement in OBMMI-tied CME futures and many conversations about capital markets strategies for non-agency loans, it’s clear lenders are being proactive in their pricing, margin and pipeline risk strategies.”
Key findings from the Market Advantage report, derived from direct-source mortgage lock and secondary market data, include:
Volume trends and market composition
* Volume down: Total locks declined 3% MoM in July, driven primarily by a 5% drop in purchase activity and reflecting ongoing affordability challenges.
* Refinance share increases: Although only 20% of the market, refis are gaining traction as borrowers with post-2022 loans find opportunities to lower monthly payments. Cash-out and rate-and-term refis rose 5% and 7%, respectively.
* PUD volume rises: Planned unit development (PUD) activity grew 0.85% to 28.5% of all production, while single-family homes declined by 0.87% to 63.5%. Despite the monthly increase, new construction market share is down 4% YoY, pointing to a broader builder pullback.
Rates and pricing
* Benchmark rates climb: The OBMMI ended July at 6.72%, up 5 bps after dipping to ~6.625% earlier in the month. FHA rose 3 bps to 6.50%, VA increased 4 bps to 6.33% and jumbo jumped 11 bps to 6.89%.
* MSRs dip: Mortgage servicing rights (MSRs) for conforming 30-year loans fell 3 bps to 1.19, moving in counter to OBMMI, but impacted by increases in intramonth volatility.
* Futures activity rises: CME futures tied to the OBMMI are attracting increased interest from MSR holders and pipeline hedgers seeking to manage rate risk. MSR values tend to fluctuate with interest rate expectations, and recent activity suggests growing demand for tools that help mitigate exposure.
Channel and execution
* Conventional share slips: The GSE-eligible share declined 0.78% to 52.2%, while non-conforming originations (including jumbo and non-QM) rose 0.62% to 16.8%. FHA, VA and USDA volumes remained flat MoM.
* Hedged loan sales shift: Sales to the agency cash window fell 200 bps to 26%, while agency mortgage-backed security (MBS) executions rose to 37%, reflecting stronger securitization activity among large lenders and potential for market share increase from this cohort.
* Loan sales favor higher pricing tiers: The share of loans sold at the highest price rose to 70% (+100 bps), while loans sold in the fourth tier or worse fell to 11% (-100 bps), suggesting that eligibility exceptions and representative delivery profiles played a smaller role in pricing decisions than in prior months.
Product mix and borrower profiles
* Non-QM reaches record: The share of non-QM loans hit 8% of total volume for the first time, with investor/DSCR at 29%, bank statement loans at 34% and other non-traditional income documentation methods at 38%.
* ARMs gain: Adjustable-rate mortgages (ARMs) rose to 9.52% of overall volume in July, up from 8.81% in June, despite the SOFR curve flattening with the 2-year/10-year spread dropping ~ 7 bps, but remaining positively sloped.
* Average credit scores: Conforming FICO scores fell 1 point to 756, and FHA scores dropped to 675, while VA remained flat at 713.
* Loan amounts dip: The average loan amount was $382,476, down from $386,084 in June. Of the top 30 MSAs, average loan amounts ranged from a high of $609,008 in the New York region to a low of $476,637 in Sacramento, California.
To view the full July 2025 Market Advantage report, complete the free subscription form: https://engage.optimalblue.com/market-advantage. Subscribers receive a report PDF each month with the latest data. Members of the press are eligible for special, advance access each month and should contact Olivia DeLancey to be added to the media list.
This month’s Market Advantage podcast features Julian Hebron, founder of The Basis Point. Access the podcast: https://market-advantage.captivate.fm/episode/episode-11.
About the Market Advantage Report
Optimal Blue issues the Market Advantage mortgage report each month to provide insight into U.S. mortgage trends and drivers of lending profitability. Data is sourced from the Optimal Blue PPE, which is used to price and lock more than one-third of all mortgages nationwide, and Optimal Blue’s hedging and loan trading system, which supports approximately 40% of loans hedged and sold into the secondary market. As the leader in mortgage capital markets technology, Optimal Blue has a direct view of both origination and secondary market activity, and the interconnectedness of the two. Unlike self-reported survey data, Optimal Blue’s direct-source data accurately reflect the in-process loans in lenders’ pipelines and secondary market executions. Visit Optimal Blue’s website to subscribe to receive the free report each month.
Nothing herein shall be construed as, nor is Optimal Blue providing, any legal, trading, hedging, or financial advice.
About Optimal Blue
Optimal Blue powers profitability across the mortgage capital markets ecosystem. As the industry’s only end-to-end capital markets platform, our technology, data, and integrations bridge the primary and secondary markets to help lenders of all sizes maximize performance – from pricing accuracy to margin protection and every step in between. Backed by over 20 years of proven expertise, our modern, cloud-native technology delivers the real-time automation, actionable data, and seamless connectivity lenders need to navigate market volatility and scale for growth. To learn more about how Optimal Blue delivers measurable ROI, visit OptimalBlue.com.
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NEWS SOURCE: Optimal Blue. Story was sourced from a press release issued by Send2Press® and used with permission. View the original story at: https://www.send2press.com/wire/refinances-tick-up-and-non-qm-hits-record-high-as-purchase-activity-falls-nearly-5-in-july/
