Non-qualified mortgages continued to gain market share in May, accounting for 9% of total lock volume, while conforming lending remained below half of all mortgage production for a second consecutive month, according to Optimal Blue's latest Market Advantage report.
The company's May 2026 data showed Non-QM share rising 83 basis points from April and 207 basis points from a year earlier. At the same time, conforming loans accounted for just under 49% of total lock volume after falling below 50% for the first time in April.
Adjustable-rate mortgages also expanded their footprint, representing 11% of total production in May — the highest level since October 2022, excluding a temporary spike in March 2026.
For LOs operating in the Non-QM space, the data points to a market where product diversification continues to play a larger role in serving borrowers. While overall mortgage activity softened during the month, alternative products captured a larger share of production.
Total rate-lock volume declined 9% month over month but remained 7% higher than a year earlier. Purchase loans continued to dominate production, accounting for more than 81% of all locks, while refinance share fell to 19%, its lowest level since June 2025.
Purchase lock volume declined 5% from April but remained 3% higher year over year. Rate-and-term refinance volume dropped 34% month over month, though it remained 46% higher than a year ago. Cash-out refinance volume declined 13% month over month and was 7% higher than May 2025.
"Purchase activity continues to be the loan purpose leader in spite of affordability pressures," said Mike Vough, senior vice president of corporate strategy at Optimal Blue. "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. Pull-through rates declined across both purchase and refinance pipelines, which tells us borrowers are closely monitoring changes in the rate market."
The changing product mix extended beyond Non-QM lending.
FHA loans accounted for 19% of lock volume in May, matching the share of non-conforming loans. VA loans represented 13% of production, while USDA loans held steady at 1%.
The report also found that first-time homebuyer participation softened modestly across the major product categories. First-time buyers accounted for 44% of conforming purchase locks, 70% of FHA purchase locks, and 44% of VA purchase locks.
Borrower credit profiles remained relatively stable. The average purchase credit score held at 731, including 754 for conforming borrowers, 677 for FHA borrowers, and 715 for VA borrowers.
Meanwhile, lenders saw weaker pipeline conversion during the month. Purchase pull-through rates fell 539 basis points from April to 76.7% and were down 636 basis points year over year. Refinance pull-through dropped 1,332 basis points month over month to 65.3%, though it remained 304 basis points higher than a year earlier.
Mortgage rates moved higher in May, with Optimal Blue's 30-year conforming fixed-rate index increasing 13 basis points to 6.44%. The 10-year Treasury yield rose 5 basis points to 4.45%, widening the mortgage-to-Treasury spread to just under 200 basis points.
In the secondary market, agency mortgage-backed securities executions declined to 41% of funded loan sales, down 349 basis points from April. Cash executions gained share, increasing 362 basis points to 32% of funded loan sales.
Mortgage servicing rights values also moved higher. MSRs for conforming 30-year loans increased 7 basis points to 1.36%, representing a 5.44 multiple.
"We saw lenders continue to balance different execution options during May," Vough said. "Agency MBS share declined while cash executions gained ground, reflecting the impact of agency execution strategies and/or specified pay-up impacts."
The May report suggests that while purchase lending remains the primary driver of mortgage production, market-share gains continue to come from products outside the traditional conforming channel.
For lenders active in the Non-QM space, the May data offers another sign that growth opportunities continue to emerge outside the traditional agency channel. While overall lock activity declined during the month, Non-QM lending, ARMs, and non-conforming products all gained market share.
*This article was primarily written by a human author. AI tools were used in a limited capacity for research assistance or light editing.
