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At the tail end of 2024, mortgage borrowers shifted their attention away from conforming mortgages and toward refinance opportunities. A report released Tuesday by Optimal Blue found that the conforming loan share sank to historic lows in December.
Optimal Blue’s December 2024 Market Advantage report is a monthly study that analyzes key indicators to provide insights into U.S. mortgage market trends. The report uses lender rate-lock data from the company’s product and pricing engine (PPE).
According to Optimal Blue, December mortgage lock volume was up 26% year over year, but it was down 8% from November. The yearly increase was driven by an 18% jump in purchase locks, a 43% jump in cash-out refinances and an 82% spike in rate-and-term refis.
More refis in December pulled market share away from other loan types, including conforming loans. The refinance share of activity rose to 24%, which was the highest share since September. This was led by a rate-and-term refi surge of 33% compared to November. Among the 20 largest U.S. metro areas, Los Angeles had the highest share of refinance activity (34%).
“December’s data illustrates how the market can adapt to shifting conditions,” Brennan O’Connell, director of data solutions at Optimal Blue, said in a statement. “While a seasonal dip was expected, the year-over-year growth reflects resilience and an increasing demand for refinance opportunities driven by rate adjustments.
“Notably, conforming loan share has hovered around historic lows for the past five months, hitting 51% last month. This trend illustrates how borrowers are relying increasingly on government and non-conforming loans to finance in a challenging market.”
The conforming loan share dropped by 1.5% between November and December, with the 51% share representing the lowest level since Optimal Blue began tracking the metric in 2018. This reflects a shift away from conforming loan products eligible for purchase by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
Rising interest rates likely played a factor, with the 30-year conforming rate rising by 16 basis points (bps) from November to reach 6.83% in December, according to Optimal Blue.
While conforming loans became less common, Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and nonconforming loan types gained traction. FHA loans rose to 21% of all lock activity, with nonconforming loans at 16% and VA loans at 11.5%.
Borrower credit health also rose last year. According to Optimal Blue, average credit scores steadily increased each month in 2024, But the average credit scores for purchase and rate-and-term refi locks dropped last month to 737 and 727, respectively. The average credit score for cash-out refi borrowers increased to 697.
Meanwhile, the average loan amount stagnated as home prices cooled down. According to Optimal Blue, the average loan amount rose to $376,900, while the average sale price fell to $473,700.
