"Borrowers are responding quickly to rate improvements, driving the strongest month for rate-and-term refinances we've seen this year," said Mike Vough, head of corporate strategy at Optimal Blue, in a press release.

Mortgage rates finished August lower across all loan types by between 24 to 33 basis points, reversing the previous month's upward trend to drive homeowners to the borrowing table. The 30-year conforming average fell by almost a quarter point from July to 6.49%, the product-pricing engine's platform data showed. 

A drop in purchase locks, though, laid out the challenges still in front of buyers in today's housing market, with volumes dropping by 9.8% from July. On a year-over-year basis, purchase locks were near par, edging down by a smaller 0.5%. Along with falling interest rates, seasonal home buying trends contributed to the divergence between purchase and refi activity last month. 

Despite the notable surge in the refinance category, total lock volume pulled back 1.8% month over month but was flat versus a year earlier, with just a 0.1% uptick, as the higher number of purchase loans dampened growth. The change led Optimal Blue's index score to fall to a reading of 99, with purchases making up almost three-quarters, or a 74% share of transactions last month. Refis accounted for the remaining 26%. 

Optimal Blue's data also showed continued growth in non-QM activity, with originations nabbing an 8.34% share relative to total volume, a new record high. The non-QM slice increased from 8.03% in July. 

August's conforming share of locks came in at 51%, while nonconforming made up 17.3% of activity. Among government-sponsored activity, Federal Housing Administration-backed loans accounted for 19%, and Department of Veterans Affairs-guaranteed mortgages garnered 12.1%. U.S. Department of Agriculture locks equaled 0.7%.

Meanwhile, adjustable-rate mortgages represented 10.25% of August lock volume. 

Securitization activity sees growing lender interest

Agency loan sales also presented a change in lenders' secondary market strategy, according to Optimal Blue. Cash-window deliveries fell to 24% of volume, while agency mortgage-backed securitizations garnered 40%, signaling increased MBS interest among large lenders, Optimal Blue reported.

"This trend underscores how lenders are strategically adapting to optimize execution in order to gain market share," Vough said. "We're seeing deeper engagement in securitization alongside more loans sold to the highest price during loan sales, signaling that capital markets strategies are adjusting to increase profitability."

Loans sold at the highest pricing tier increased to a 75% share, suggesting lenders offered cleaner profiles in their deals, Optimal Blue also said.