Written by: Internal Analysis & Opinion Writers
August saw a dramatic shift in mortgage market behavior as rate-and-term refinances surged and non-QM lending hit its highest level to date. While purchase activity continued to cool, a wave of homeowners rushed to take advantage of slightly improved rates, and lenders expanded their reach with creative non-agency loan offerings.
According to new data from Optimal Blue, rate-and-term refinance locks skyrocketed by nearly 70% last month, the strongest showing so far in 2025. At the same time, purchase locks fell 9.8% from July, dragging overall rate lock volume down 1.8% month over month.
The average 30-year fixed mortgage rate slipped to around 6.56% by mid-August, down from 6.75% in July. Though still elevated compared to pandemic-era lows, the slight reprieve was enough to trigger action from homeowners who had previously been sidelined.
The refinance rally wasn’t the only story. Non-QM lending—mortgages that fall outside the traditional agency criteria—also surged. In August, non-QM loans accounted for 8.34% of originations, up from 8.03% in July. That marks the highest share on record for the product type, signaling increased borrower appetite for alternative underwriting paths.
Within the non-QM space, income verification methods showed notable variation. Bank statement loans made up 31.9% of August non-QM refinances, down slightly from the prior month. Debt-service coverage ratio (DSCR) loans, often used by real estate investors, held steady at 28.5%. All other documentation types—including asset depletion, P\&L, and 1099-based verifications—rose to 39.6%, reflecting a growing demand for flexibility.
Nonconforming products overall continued to gain market share. Combined, non-QM and jumbo loans made up 17.3% of total mortgage locks—up 48 basis points from July. Conforming loans, by contrast, slipped to 51%, indicating a continued drift away from the agency-dominated lending space.
Changes in secondary market execution also reflected these trends. Cash-window delivery to Fannie Mae and Freddie Mac fell to 24%, while agency swaps climbed to 40%. The shift suggests lenders are actively managing interest-rate and liquidity risk, favoring securitization routes over direct GSE sales.
What’s driving the trend? For one, even modest dips in mortgage rates are proving enough to motivate refinancing for homeowners holding rates above 7%. Many see this window as a chance to reduce monthly payments or shift out of adjustable-rate loans before the next potential rate hike.
Simultaneously, the non-QM surge reveals how borrowers with complex income profiles—or those shut out of conventional channels—are finding new pathways to financing. Whether through DSCR loans for investors, bank statement loans for self-employed borrowers, or other creative programs, non-QM lenders are capitalizing on a market segment hungry for solutions.
For mortgage professionals, the data points to a dual opportunity: serve rate-sensitive borrowers while expanding expertise in the fast-growing non-QM space. As traditional volume shrinks and housing affordability remains stretched, diversification may be essential for sustained production.
With market volatility still looming and the Fed signaling caution, both borrowers and lenders appear eager to seize opportunities while they last.
