Optimal Blue: Rising Rates Cool July Mortgage Activity

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Mortgage activity softened in July as rising rates weighed on both purchase and refinance demand, according to Optimal Blue, Plano, Texas.

The firm’s July 2026 Market Advantage mortgage data report said total rate-lock volume declined 11% month over month but remained 5% above July 2025. Purchase lock volume fell 12% from June but remained 6% higher year over year, with purchase loans accounting for more than 81% of total lock volume. Refinance share ended the month at nearly 19% of total production.

“Mortgage rates moved higher across all major products in July,” the report noted. The Optimal Blue Mortgage Market Indices (OBMMI) 30-year conforming fixed rate rose 26 basis points MoM to 6.72%, essentially unchanged from a year ago. The 10-year Treasury yield climbed 31 basis points to 4.75%, while the spread between the 10-year Treasury and the OBMMI 30-year conforming rate narrowed 5 basis points to 197 basis points.

“July was a clear reminder of how sensitive this market remains to rate movement,” noted Mike Vough, senior vice president of corporate strategy at Optimal Blue. “A 26-basis-point rate increase was enough to pull both purchase and refinance volume meaningfully below June’s pace.”

Vouch said the market is still outperforming last year, “but momentum remains fragile and highly dependent on where rates move next.”

On the secondary side, execution spreads tightened modestly across major products, with best-efforts-to-mandatory spreads for conventional 30-year products narrowing 1 basis point to 30 basis points while government 30-year spreads tightened 2 basis points to 16 basis points. Mortgage servicing rights for conforming 30-year loans increased 2 basis points to 1.34%, moving in line with rates. The share of loans sold at the highest price tier improved 128 basis points to 79%.

The July report introduced three new secondary market datasets sourced from Optimal Blue’s CompassEdge hedging and loan trading platform: spec-eligible pipeline share, loan pipeline versus hedge alignment and MSR retention versus release strategy mix.

“MSR valuations increasing and top-tier executions improving share are two constructive signals in an otherwise challenging month,” Vough said. “The new pipeline-to-hedge alignment data show lenders using the UM30 5.5 as their primary hedge, accounting for 67% of hedges, while 35% of production is slotting into the 5.5 coupon and 24% into the 6.0 coupon. That gap between where risk sits and how it is being hedged gives capital markets desks the visibility they need to manage execution more precisely.”

Key findings from the Market Advantage report include:

VOLUME TRENDS AND MARKET COMPOSITION

Refi activity retreats: Refinance share ended the month at nearly 19% of total production. Rate-and-term refinance volume declined 17% MoM but remained 3% above July 2025 levels. Cash-out refinance volume fell 5% MoM and was essentially unchanged from a year ago.

Purchase activity cools: Purchase lock volume fell 12% from June but remained 6% higher YoY. Purchase loans accounted for more than 81% of total lock volume in July.

Conforming share keeps shrinking: Conforming share declined to 47% of total production, down 135 basis points from June and nearly 5 percentage points from a year ago. Non-conforming share expanded to nearly 21% of volume. FHA represented 19% of production while VA loans accounted for more than 12%.

Non-QM growth continues: Non-qualified mortgage loans accounted for more than 10% of total lock volume in July, up 1.4 percentage points MoM and more than 2 percentage points from a year ago. Investor and debt service coverage ratio loans represented more than a third of non-QM production, bank statement loans accounted for more than 30% and all other expanded guideline products made up the remaining 36%.

ARMs stay elevated: Adjustable-rate mortgages accounted for more than 11% of lock volume in July, remaining above the 10% range that characterized much of 2025.

New construction holds strong: Planned unit developments, a proxy for new construction activity, increased to 29% of total volume. Single-family detached homes remained the dominant property type at 63% of production.