Loans classified by Optimal Blue as Non-QM or “Expanded Guidelines” captured 11.3% of mortgage rate-lock volume in August, reaching the highest level shown in the report’s three-year chart as investor and debt-service coverage ratio lending claimed a larger share of the segment.
Non-QM’s share of overall lock volume increased approximately 1 percentage point from July and 2.9 percentage points from a year earlier, according to Optimal Blue’s August Market Advantage report.
The growth was driven primarily by investor and DSCR loans, which accounted for 35.1% of Non-QM production. That was an increase of 1.67 percentage points from July, 5.73 points over three months, and 6.66 points from August 2025.
Bank-statement loans represented another 29.8% of Non-QM production. Their share, however, declined 81 basis points from July and 2.09 percentage points year over year. Other Non-QM products accounted for the remaining 35.1%, down 4.57 percentage points annually.
The figures show that Non-QM is not merely capturing a larger piece of the mortgage market. Its internal mix is shifting toward loans underwritten against investment-property cash flow.
Non-QM Grows As Overall Demand Slips
The Non-QM gain came as total mortgage activity weakened.
Overall rate-lock volume declined 9% from July and fell 3% below its August 2025 level. Conforming loans represented 47% of production, down 38 basis points monthly and more than 4 percentage points annually.
Non-conforming loans, a broader category that includes jumbo and Non-QM products, held at nearly 21% of total production. FHA’s share increased 74 basis points to nearly 20%, while VA declined 44 basis points to approximately 12%.
Purchase locks fell 10% from July but remained 6% higher than a year earlier. Purchases accounted for nearly 81% of total lock volume.
Rate-and-term refinance activity, meanwhile, dropped 13% monthly and 47% year over year. Cash-out refinance volume declined 3% from July and 5% annually.
“Purchase activity is still running ahead of last year, but with rate-and-term refinance volume down 47%, there just isn’t much refinance demand to support the broader market,” said Brennan O’Connell, director of data solutions at Optimal Blue. “With rates still elevated and our 12-month forecast pointing to only gradual relief, the market remains highly sensitive to even modest changes in borrowing costs.”
The Optimal Blue Mortgage Market Indices 30-year conforming fixed rate ended August at 6.72%, unchanged from July but 23 basis points higher than a year earlier. Optimal Blue forecasts the rate will rise to 6.82% over the next three months before easing to 6.51% over the next year.
DSCR Competition Intensifies
The rise in investor and DSCR volume helps explain why more lenders and capital providers are competing for those loans.
Competition has narrowed the rate difference between DSCR and conventional mortgages, while pushing lenders to compete more heavily on credit terms, service, and closing speed.
Data cited by Kiavi indicated that DSCR rates were approximately 50 basis points above conventional mortgage rates, compared with a gap of 75 to 100 basis points a year earlier.
That compression can make DSCR financing more competitive for investors who might qualify for a conventional investment-property mortgage but prefer a business-purpose loan underwritten primarily against rental income.
It also changes the calculation for originators. With less separation among rate sheets, lender selection increasingly depends on credit terms, reserve requirements, rent calculations, and the ability to close a complicated file without unnecessary delays.
Greater competition carries risks, however. Kiavi executives previously told NMP that some lenders were accepting lower DSCR thresholds, higher loan-to-value ratios, reduced reserve requirements, or more aggressive rent calculations to win production.
Non-QM Requires A Different Operating Model
The growth in alternative-documentation lending does not necessarily make the loans easier to originate.
Bank-statement income calculations, DSCR requirements, reserve standards, property types, and lender overlays can vary significantly. Originators therefore need a process for identifying a borrower’s income or cash-flow profile before shopping the file.
Truss Financial Group built a 99% Non-QM brokerage closing approximately 1,350 loans annually by using specialized intake, scenario-matching, quality-control, and processing teams.
The company recently added direct-lending capabilities while retaining access to more than 90 wholesale lenders, giving it greater control over selected bank-statement, DSCR, asset-depletion, and home-equity loans without surrendering the product breadth of the wholesale channel.
Optimal Blue’s findings suggest that expertise is becoming more valuable. Overall mortgage demand may be slipping, but the available production is not disappearing evenly. A growing portion is moving toward Non-QM, and within Non-QM, investor and DSCR lending is taking the lead.
