Mortgage Lock Volume Slid 9% In May, Optimal Blue Reports

Mortgage activity slowed in May as rising interest rates dampened both purchase and refinance demand, according to Optimal Blue‘s May 2026 Market Advantage report.

The report, released Tuesday, found that total mortgage rate lock volume fell 9% from April, although it remained 7% higher than a year earlier. Purchase loans continued to dominate the market, accounting for more than 81% of all rate locks, while refinances represented 19% of volume, the lowest share since June 2025.

The average 30-year conforming mortgage rate, as measured by Optimal Blue’s Mortgage Market Indices, rose 13 basis points during the month to 6.44%. The yield on the 10-year Treasury note increased 5 bps to 4.45%, while the spread between mortgage rates and Treasury yields widened to just under 200 basis points.

“Purchase activity continues to be the loan purpose leader in spite of affordability pressures,” Mike Vough, senior vice president of corporate strategy at Optimal Blue, said in a statement. “More than four out of five mortgage locks were tied to purchase transactions in May, but the more notable shift may be what happened after borrowers locked.”

Vough said pull-through rates, which measure the percentage of locked loans that ultimately close, declined for both purchase and refinance loans as borrowers reacted to changing rate conditions.

Refinance activity saw some of the sharpest declines. Rate-and-term refi volume fell 34% from April, although it remained 46% above year-ago levels. Cash-out refinances declined 13% month over month but were still 7% higher than in May 2025.

Purchase lock volume decreased 5% from April but remained 3% above the same period a year earlier.

The report also showed borrowers increasingly turning to alternative loan products. Adjustable-rate mortgages accounted for 11% of production in May, the highest level since October 2022, excluding March 2026. Nonqualified mortgage (non-QM) loans made up 9% of total lock volume, up 83 bps from April and 207 bps from a year earlier.

Meanwhile, conforming loans continued to lose market share. Conforming mortgages accounted for just under 49% of total lock volume in May, extending a decline that pushed the category below 50% for the first time in April.

Federal Housing Administration (FHA) and nonconforming loans each accounted for 19% of volume, while U.S. Department of Veterans Affairs (VA) loans accounted for 13%.

On the secondary market side, lenders shifted execution strategies. Hedged loan sales into agency mortgage-backed securities fell to 41% of funded loan sales, while cash executions increased to 32%.

“We saw lenders continue to balance different execution options during May,” Vough said. “Agency MBS share declined while cash executions gained ground.”

Mortgage servicing rights (MSRs) values also increased during the month. Servicing values on conforming 30-year loans rose 7 basis points to 1.36%, reflecting stronger servicing economics as rates moved higher.

The report found some signs of softening demand among first-time homebuyers, who accounted for 44% of conforming purchase locks, 70% of FHA purchase locks and 44% of VA purchase locks. Each of these shares represented modest declines from April.

Borrower credit profiles remained largely unchanged. The average credit score for purchase borrowers held at 731, while average debt-to-income ratios remained stable across major loan programs.

Loan sizes edged higher, with the average locked loan amount rising to $395,536 in May, up from $394,046 in April. The average loan-to-value ratio was 81.6%.

Pipeline conversion weakened during the month. Purchase pull-through rates fell to 76.7%, down 539 basis points from April, while refinance pull-through dropped to 65.3%, a decline of 1,332 bps month over month.