Mortgage rate dip ignites refi boom in January

Taking advantage of falling interest rates, largely spurred by narrowing primary-secondary spreads resulting from a White House pronouncement, consumers stepped up rate lock activity, while lenders added products in January, separate reports noted.

On Jan. 8, Pres. Trump ordered Fannie Mae and Freddie Mac to purchase $200 billion of mortgage-backed securities. This came at a time when the government-sponsored enterprises were already adding to their retained portfolios.

The resulting tighter spreads between the primary and secondary markets led to mortgage rates declining. The Freddie Mac Primary Mortgage Market Survey for Jan. 15 put the 30-year fixed rate at a three-year low, at 6.06%; anecdotal reports from the prior week had some lenders offering loans under 6%.

What happened with mortgage rates in the past three weeks?

In the three weeks since, rates have increased and are now 5 basis points higher at 6.11%. Intervening factors included the President's saber rattling over Greenland and the Federal Open Market Committee's decision not to change short-term rates.

The 10-year Treasury yield, another benchmark for mortgage pricing, peaked at 4.275% on Feb. 4, before again moving lower and was at 4.143% as of 11 a.m. on Feb. 10.

Lender Price data posted on the National Mortgage News website had the 30-year FRM at 6.09% at the same time, which was down 25 basis points on the day. On Feb. 5, this was at 6.34%.

Lower rates drive increased lock volume in January

Given that mortgage rates are much lower than they were 52 weeks' prior, consumers took advantage and lock volume overall was 30% higher than the same month in 2025 and increased 16% from December, the Optimal Blue Market Advantage Report said.

Rate-and-term refinance locks increased by 50% from the prior month and by 413% compared with January 2025. Cash-out refis, which tend to be more need-driven, increased 11% month-to-month and 37.8% year-over-year.

But purchase lock volume grew just 3.1% from December and was actually 4.7% lower than one year prior, when the 30-year FRM briefly broke through the 7% ceiling.

As a result the Optimal Blue Market Volume Index of 108 was an increase of 15.8% from December and 36.1% from January 2025.

"January's data shows just how quickly refinance demand can respond when rates move lower," said Mike Vough, senior vice president of corporate strategy at Optimal Blue, in a press release. "It's been more than three years since the market last saw average rates with a '5 handle,' and crossing back below that level appears to have released meaningful pent-up refinance demand."

Optimal Blue's data on its website put the conforming 30-year FRM at 5.999% on Jan. 12, the only day it averaged under 6%.

"Purchase activity is responding more gradually, which is typical this early in the year, but the shift in borrower behavior is clear," Vough continued.

A shift in the mix of products being locked

Lower rates also likely contributed to the shift away from nonconforming/non-qualified mortgage products back to the conforming market.

Conforming lock activity made up 52.9% of the volume, up 192 basis points from the prior month and 147 basis points year-over-year. Nonconforming volume fell 161 basis points in January from December to 15.5%, and was virtually flat with January 2025.

Federal Housing Administration-insurance mortgage locks fell by 160 basis points from December and 359 basis points from the prior year to a 17.3% market share in January.

But Veterans Affairs mortgages, with a 13.6% share, gained 125 basis points from December and 212 basis points over January 2025. "VA lending captured a larger share of January activity as borrowers moved quickly to take advantage of lower rates, positioning VA portfolios for increased refinance-related payoffs as those loans move through the pipeline," Optimal Blue said.

Lower LTV, higher credit score loans added to lender menus

While lower rates did lead mortgage lenders to loosen credit in January, this was a result of increases in adjustable rate mortgage offerings, cash-out refi products and second home loans, the Mortgage Bankers Association found.

These products typically require the borrower to have a lower loan-to-value ratio and a higher credit score, said Joel Kan, MBA deputy chief economist in the press release.

Its Mortgage Credit Availability Index increased to 105.1 in January. This compared with 104.7 in December and 99 last January.

The Conventional MCAI was up 2.1%, as the jumbo component rose by 2.9%, but the conforming portion was unchanged from December.

Meanwhile, the Government MCAI was just 0.1% higher.

"The beginning of the year is typically when lenders start to position themselves for the spring homebuying pick up, and recent dips in mortgage rates have provided windows of refinance opportunities, including refinances into ARM loans," Kan said. "Jumbo credit availability expanded almost 3% over the month, with the growth in supply of both jumbo and non-QM loan programs."

More securitizations, fewer bulk sales in January

The President's all for a $200 billion purchase of mortgage-backed securities likely had an impact on secondary market strategies, as sales for securitizations increased by 3 percentage points December-to-January, at 47%, the Optimal Blue data found.

However, it is the sixth straight month in which MBS had a 40% share, with the previous peak coming in October when it was 46%.

Until June, bulk sales had predominated, reaching 41% in April. In January, they had a 28% share, while the cash window was at 34% and best efforts just 2%.