Mortgage Demand Slips Below Year-Ago Levels, Optimal Blue Reports

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Mortgage activity softened in August, Optimal Blue said in its latest Market Advantage report.

Total rate-lock volume declined 9% month over month and slipped 3% below August 2025 levels.

Purchase lock volume fell 10% from July but remained 6% higher year over year, with purchase loans accounting for nearly 81% of total lock volume.

Refinance share ended the month at more than 19% of total production, while rate-and-term refinance volume dropped 47% YoY and declined 13% MoM, Optimal Blue reported.

Mortgage rates saw little change across major products in August. The Optimal Blue Mortgage Market Indices 30-year conforming fixed rate ended the month at 6.72%, unchanged from July but 28 basis points higher than three months ago and up 23 basis points YoY. The 10-year Treasury yield held flat at 4.75%, while the spread between the 10-year Treasury and the OBMMI 30-year conforming rate was unchanged at 197 basis points. The report noted the spread was nearly 30 basis points tighter than a year ago, partially offsetting the impact of higher Treasury yields.

“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.”

O’Connell said with rates still elevated and his firm’s 12-month forecast pointing to only gradual relief, “the market remains highly sensitive to even modest changes in borrowing costs.”

On the secondary side, execution spreads tightened across most major products, with the best-efforts-to-mandatory spread for conventional 30-year loans narrowing 4 basis points to 26 basis points and the 15-year spread narrowing 3 basis points to 37 basis points, while the government 30-year spread held flat at 16 basis points.

Mortgage servicing rights for conforming 30-year loans increased 4 basis points to 1.38%, a 5.52 multiple, moving in line with a monthly OBMMI average that rose 11 basis points. The share of loans sold at the highest price tier declined from 79% to 77%, while the share of loans sold with servicing retained increased 4 percentage points to 57%, rebounding from 53% in June and July.

The report also found that lenders continuing to concentrate their hedges in the UM30 5.5, the 5.5% coupon for 30-year uniform mortgage-backed securities. It accounted for 62% of hedges in August, compared with 27% of production slotting into the 5.5 coupon and 25% into the 6.0 coupon.

“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. “Servicing retention also moved back up to 57%, while the UM30 5.5 remained the dominant hedge even as production was more distributed across the 5.5 and 6.0 coupons. That gap between hedge concentration and where production is actually slotting is worth watching closely.”