Surging rate-and-terms push lock volumes upward

A jump in refinance activity lifted mortgage lock volumes last month, but purchase numbers may hold more promise for lenders.

Total lock volume in June came in 2.11% higher month over month, according to the latest data from Mortgage Capital Trading. Rate-and-term refinance activity provided much of the momentum with a leap of 9.89%, as borrowers took advantage of a pullback in interest rates late last month. Cash-out transactions also increased 3.14% month over month. 

Growth in refi volume exceeded the pace of purchases, which grew 2.11% compared to May's numbers. 

Despite the slower pace of purchase locks, steady numbers in the face of recent economic uncertainty may prove to be a better indicator of current housing sentiment, said MCT's senior director and head of trading Andrew Rhodes.

"Rate-term and cash-out refinances may bounce around, but purchases are what's driving the boat," he said in a press release.  

"With a drop from the highs in rates toward the end of June, there was a direct effect on refinance activity. It's a strong example of just how reactive this market continues to be," Rhodes also noted.

June activity accelerated even faster on a year-over-year basis, as total lock volume surged 9.39%. Purchase locks came in 7.04% higher, with this June's mortgage rate averages below year-ago levels. Refinances also surged with the lower rates; rate-and-term transactions finished 35.49% higher, while cash-outs swung up by 24.41%.

Non-QM activity sees ongoing growth

MCT's June numbers align with lock activity observed by Optimal Blue earlier this month. Total volumes rose 1.95% from May according to the product pricing engine's measurements. 

Refi activity similarly saw significant movement in Optimal Blue's report, with rate-and-term locks up 17.4% from May and 18.4% year over year. Cash-out refinances increased 8.1% on a monthly basis and 28% from June 2024. Purchase locks, meanwhile, held steady at the tail end of the homebuying season.

Refinances accounted for 18% of volume, up from May's 16%. Purchase locks made up 82% of June activity. 

The nonqualified mortgage segment, consisting of originations that do not meet criteria for sale to the government-sponsored enterprises, garnered a 7.4% of lock share in June, continuing growth trends exhibited over the past several months, Optimal Blue said.

"The steady rise in this category reflects the industry's growing focus on flexibility and meeting borrowers where they are," said Mike Vough, head of corporate strategy at Optimal Blue.

Economic developments have lenders and investors on watch for disruption that could quickly move volumes in either direction this summer. Recent employment and inflation numbers raised more questions than answers about when mortgage rates may fall later this year. 

At the same time, frequent changes in tariff policy also leaves investors guessing at the extent of the impact on markets and mortgage rates.

"Our best-case scenario is a steady, moderate uptick in lock activity with range-bound rates. Volatility is the real killer when it comes to managing margins," MCT's Rhodes said.