Mortgage rate-lock volume fell 9% from July to August and dropped 3% below year-ago levels, according to the August 2026 Market Advantage report released Sept. 8 by Optimal Blue. The decline came in a month when mortgage rates barely moved, a sign that borrowing costs near 6.7% are now the binding constraint on lending volume rather than month-to-month rate swings.
Rate locks are agreements that fix a borrower’s interest rate while a loan is processed, so they are one of the earliest available reads on origination activity β typically running several weeks ahead of closed-loan data.
Refinancing demand has nearly vanished
The sharpest drop was in rate-and-term refinancing, where borrowers swap into a new loan purely to lower their rate or change the term. That volume fell 13% from July and 47% from August 2025. Cash-out refinancing, in which a borrower takes equity out of the home, held up better, slipping 3% month over month and 5% year over year.
Refinancing still nudged up as a share of the market, rising 40 basis points to more than 19% of total production β but only because purchase lending fell faster. Purchase locks dropped 10% from July, though they remained 6% above August 2025 and accounted for nearly 81% of all lock volume.
“After a sharp move higher in July, rates leveled off in August, but that pause didn’t translate into stronger volume,” said Brennan O’Connell, director of data solutions at Optimal Blue. “Purchase activity is still running ahead of last year, but with rate-and-term refinance volume down 47%, there just isn’t much refinance demand to support the broader market.”
Rates flat, spreads tighter
The Optimal Blue Mortgage Market Indices 30-year conforming fixed rate β the benchmark underlying CME Group’s mortgage rate futures β ended August at 6.72%, unchanged from July but 28 basis points above where it stood three months earlier and 23 basis points higher than a year ago. The average rate actually locked through the company’s pricing engine was 6.48%.
The 10-year Treasury yield held flat at 4.75%, leaving the spread between Treasurys and the 30-year conforming rate at 197 basis points. That spread is nearly 30 basis points tighter than a year ago, which has absorbed part of the increase in Treasury yields that would otherwise have pushed mortgage rates higher. RealtyWire reported last week that the 30-year rate had climbed to a 13-month high of 6.71% as a global bond selloff lifted yields.
Optimal Blue’s forecasting tool projects the 30-year conforming rate at 6.74% a month out and 6.82% in three months before easing to 6.51% over 12 months β a path that offers little near-term relief. The primary-secondary spread is forecast to narrow from 1.09% to roughly 1.03%β1.04% over the same horizon.
The loan mix keeps shifting away from conforming
Conforming loans β those eligible for purchase by Fannie Mae and Freddie Mac β fell to 47% of production, down 38 basis points from July and more than 4 percentage points from a year ago. Federal Housing Administration lending picked up the slack, rising 74 basis points to nearly 20%, while VA loans slipped 44 basis points to nearly 12% and non-conforming volume held at roughly 21%.
Non-qualified mortgages, which fall outside standard federal underwriting rules and are often used by self-employed and investor borrowers, accounted for more than 11% of lock volume, up 1 percentage point on the month and 3 points on the year. Investor and debt-service-coverage-ratio loans made up more than 35% of that non-QM production; bank-statement loans accounted for nearly 30%. Adjustable-rate mortgages held at 10.5% of locks.
Borrower profiles were largely stable. First-time buyer share was unchanged at 44% of conforming loans, 70% of FHA loans and 45% of VA loans, and the average locked loan amount fell nearly 2% to $388,000 from $395,000 in July.
Secondary market: better spreads, weaker top-tier execution
On the secondary side, where lenders sell loans to investors, execution spreads tightened. The best-efforts-to-mandatory spread on conventional 30-year loans narrowed 4 basis points to 26 basis points, and the 15-year spread narrowed 3 basis points to 37. Mortgage servicing rights on conforming 30-year loans rose 4 basis points to 1.38%, a 5.52 multiple.
Not everything improved: the share of loans sold at the highest price tier fell from 79% to 77%, while servicing-retained sales rose 4 percentage points to 57%, rebounding from 53% in June and July.
“That gap between hedge concentration and where production is actually slotting is worth watching closely,” said Mike Vough, senior vice president of corporate strategy at Optimal Blue, referring to the 5.5% coupon for 30-year uniform mortgage-backed securities, which absorbed 62% of hedges in August while only 27% of production slotted into that coupon and 25% into the 6.0.
What it means
The verified picture is a purchase market grinding along above last year’s pace and a refinance market that has effectively closed. With the bulk of outstanding mortgages carrying rates well below 6%, a rate-and-term refinance is uneconomic for most homeowners β the lock-in effect showing up directly in origination pipelines rather than in survey data.
Optimal Blue’s forecast, which the company attributes to its machine-learning model rather than to a market consensus, points to rates rising before they fall. On that path, lenders would face another year of purchase-dominated volume. Weekly application data has been telling a similar story: RealtyWire covered a 0.8% rise in applications as the 30-year rate reached 6.79% in the most recent weekly survey.
The figures carry more weight than most industry samples. Optimal Blue’s pricing engine prices and locks more than a third of all U.S. mortgages, and its hedging and trading system covers roughly 40% of loans sold into the secondary market β direct pipeline data rather than self-reported survey responses. More coverage of rates and originations is in RealtyWire’s Mortgage section.
What to watch: whether the FHA share keeps climbing as conforming lending recedes, and whether purchase pull-through β the share of locked loans that actually close, which jumped 6 percentage points to 84.9% in August β holds at that level through the fall.
