Mortgage lock volume increased 7% in February, driven by a surge in refinancing activity as interest rates saw a slight decline, according to a report released Tuesday by Optimal Blue. The rise marks a shift from recent trends, with homeowners responding to even marginal improvements in rates by seeking to lower monthly payments or tap into home equity.
Rate-and-term refinance locks experienced the most significant jump, increasing 3% from January and rising 280 basis points from February 2023. Cash-out refinance volume too saw gains, up 1% and 34% respectively. The 30-year conforming fixed-rate ended the month at 5.9%, a decrease of 17 basis points, according to Optimal Blue’s benchmark index.
Despite the strength in refinancing, purchase activity is showing signs of improvement. Purchase lock volume rose 14% month-over-month, and 5% year-over-year, a “meaningful improvement from January’s slower start to the year,” Optimal Blue noted.
Conforming loans now represent more than half of total lending volume, commanding a 53% share in February. This is up 62 basis points year-over-year, but down 28 basis points from January. Non-conforming loans gained ground, securing a 16% share, up 91 basis points month-over-month and 90 basis points from a year ago. Government-backed lending continues to represent a substantial portion of the market, with FHA-insured loans accounting for 17% of February’s lending, VA-backed loans at 13%, and USDA-backed loans at 1%.
Borrowers are increasingly turning to adjustable-rate mortgages (ARMs) to navigate still-elevated rates. ARMs accounted for 10% of February’s volume, an increase of 1.1% month-over-month and 3.4% year-over-year from 6.5% in February 2023.
Single-family houses continue to dominate the market, responsible for almost two-thirds of the volume. Loans in planned unit developments accounted for nearly one in every three mortgages, while condominium lending stood at 6%, and factory-built houses garnered just a 1% share.
The report also highlighted the strong credit profiles of borrowers. The average credit score on conforming loans was 756, while it was 718 on VA loans and 678 on FHA mortgages. For loan purpose, the average score on purchase funding was 734, compared to 749 on rate-and-term refinances and 705 on cash-out refinances.
First-time homebuyers remain a significant segment of the market, taking 70% of all FHA loans, 48% of VA mortgages, and 46% of all conforming mortgages. Pull-through rates, however, declined for purchase loans to four out of every five, while they rose to 74% for refinances.
