On Aug. 12, the 10-year Treasury yield was at 3.94%, flat with Aug. 9 and almost 6 basis points lower than it was on Aug. 8, but that was up from 3.67% on Aug. 5, the day the markets had the reaction to the jobs report.

Lower rates helped locked activity of all types grow during July, the Optimal Blue Market Advantage report showed.

Its Market Volume Index, a measurement of rate lock activity, rose 3.5% from June, with the largest gain in rate and term refinance volume, up 12.3%.

Cash-out refis, which benefited from lenders adding more of these offerings to their menus, grew 5.9%, while purchase locks were up 2.5% versus June.

Overall activity was flat compared to July 2023, up just 0.6% but rate and term refis were nearly double, and cash-out volume up 11.8%. But compared with a year ago, purchase locks were down by 4.8%.

"The drop in the Optimal Blue Mortgage Market Indices 30-year conforming rate to 6.67% [for the month] played a significant role in this growth, and we observed the highest level of refinance activity since September 2022," said Brennan O'Connell, director of data solutions at Optimal Blue, in a press release. The average rate for the 30-year fixed in September 2022 was just one basis point higher.

The increase in refi locks comes on the heels of a separate report from ICE Mortgage Technology that put the number of borrowers in the money to refi at 2.4 million homeowners as of Aug. 5, the most since April 2022.

(Until September 2023, Optimal Blue had been a subsidiary of Black Knight, when the latter was forced to sell it to Constellation Software as part of its own acquisition by the parent of ICE Mortgage Technology.)

While an increase in refinance activity is good for consumers, the increased prepayment speeds impact both the secondary market and mortgage servicers.

In a report from Bank of America Securities that cites both its own as well as Optimal Blue data, lenders were offering rates of 6.40% for purchase, 6.30% for rate refi and 6.60% for cash-out refi on average as of Aug. 5.

"These rates represent drops of 50, 80 and 55 basis points respectively from early July levels," said the Aug. 9 residential mortgage-backed securities note from BofA Securities analysts Jeana Curro, Chris Flanagan, Ge Chu and Leiyuan (Leslie) Wang. The analysts noted the surge in daily rate lock activity during the week and added that "these volumes could materialize as early as this month, but we think more likely the impact is most visible in September."

BofA revised its prediction of when the Federal Open Market Committee would cut rates. At the Mortgage Bankers Association Secondary and Capital Markets Conference in May, Curro said the first cut would be at the December meeting.

It now has joined those expecting more and sooner, the report said, stating Fed will now be cutting rates at the September meeting. That is still more conservative than other market observers that out of last week's upheaval are forecasting four-to-five cuts this year, BofA said.

BofA lists several reasons why it expects refi activity to grow in the near term. First off, rate and term refis are "low hanging fruit" for lenders, while industry employment, while having decreased, is still high as measured by the employee/loan metric.

Then, recent homebuyers entered the market with a "buy now, refi later" mentality, and now many are getting that eagerly awaited first opportunity.

"Third, the May 2023 increase in [loan level price adjustments] has created an additional cost for refis which may have kept them slower than what the baseline rate level would suggest," the BofA report said. "There has been much coverage on conventional premiums continuing to underwhelm model estimates. That said, we think the higher refi fees are adding to the pent up refi demand and it would take measurable rallies like the most recent one, if sustained, to really elicit meaningful prepayments."