Optimal Blue's September report shows a rare divergence from the broader market decline
As Treasury rates jumped in September, the average 30-year mortgage rate moved up with it. However, that didn’t turn out to be bad news for all loan types.
Mortgage rates jumped 67 basis points in September, and loan activity slumped, but non-qualified mortgage (non-QM) loans and adjustable-rate mortgages (ARMs) went the other way.
Optimal Blue's September 2026 Market Advantage report, released Tuesday, found non-QM lock volume rose even as total lock volume fell.
Brennan O'Connell (pictured top), director of data solutions at Optimal Blue, said non-QM had been moving with the rest of the market for months, rising faster on the way up and falling slower on the way down.
"This last month is the first time we saw them diverge," O'Connell told Mortgage Professional America. "You saw a pretty significant slowdown, at least on a year-over-year basis in September, and non-QM went up. And so I think it's a really strong signal that people are, originators and borrowers, getting creative and figuring out different paths towards financing in an otherwise difficult environment."
Borrowers find another way
Non-QM loans made up 12% of September production, up 478 basis points from a year earlier, according to the report. The question is whether this data shows that housing demand has been delayed by market conditions and is still out there.
"I think the short answer is yes," he said. "I think there is some of that happening for sure. I think you see it too, as the ARMs would also be a really good example of that. I have a monthly payment that I'm comfortable with. I was expecting to buy a house this fall. Rates are at a point now where they're not tenable for me to buy the house that I was expecting to buy.
“My monthly payment's going to be too high. Well, I can take out a 5/1 ARM, and I'm comfortable taking the risk of the adjustment period after the five years. And I can still make the monthly payment at the level that I was expecting."
Purchase locks held within 1% of year-ago levels and refinance fell to 18% of the mix, even as total lock volume fell 2% from August and 26% from a year earlier. Conforming share dropped 71 basis points to 46%, while non-conforming share rose 285 basis points to nearly 24%.
"I think the originators are also going out there and they're like, ‘Hey, are you an investor looking to do a debt service coverage ratio loan? Let's get a loan done,’" O'Connell said. "I think you have people probably hunting those loans more aggressively on the origination side as well. So I think it's a mix of both."
ARMs and what comes next
The report draws on lock data from about 800 lenders that use Optimal Blue's pricing engine to lock loans. O'Connell said they represent roughly 40% of the market.
ARMs reached 14% of September lock volume, up from 10.5% in August and the highest share in Optimal Blue's data going back to 2019. O'Connell said the share has hovered between 8% and 12% for some time, so the jump is less dramatic than the record suggests.
O'Connell said many ARMs are priced differently from agency fixed loans because a lot of them are held in portfolio. Their rates follow the Treasury curve and a bank's or credit union's cost of lending, while agency fixed rates depend on mortgage-backed securities.
"I think there's a behavioral component,” O’Connell said. “Where it's just an expectation of, ‘Well, I think rates are high. Me, the borrower, I think they're high right now. So if I think they're high, well, then I ought to get an ARM because I can just refi out of it. So why pay higher for a fixed loan right now that I'm expecting to refi? I might as well pay lower for a loan that I'm expecting to refi.’"
The pitch does not land with every borrower, O'Connell said.
"There's probably a lot of people who are not even willing to take out an ARM," he said. "I don't want, in five or seven years, to open myself up to when rates are at 12%."
The Optimal Blue Mortgage Market Indices (OBMMI) 30-year conforming rate ended September at 7.39%, and Optimal Blue's Virtual Economist forecasting tool projects it at 7.66% over the next month.
"Our terminal value a year out is like 7.8% or 7.85%, which bakes in our own lock data that we're seeing, and then other macro factors," O'Connell said. "We're looking at federal funds rate hike expectations, energy prices, some other macroeconomic data."
The forecast tool updates monthly and is available to users of Optimal Blue's pricing engine. It has been available since the report on July data.
"All the normal caveats exist. It's a forecast, right? Who knows what will happen in the world tomorrow?" O'Connell said. "But it's got some real logic behind it, and it's got real models behind it."
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