Mortgage rates dropping to a three-year low last month drove up lock activity, specifically among purchase borrowers.

Total rate-lock volume increased 9% month over month and nearly 40% on an annual basis, according to Optimal Blue's latest Market Advantage report. Purchase lock activity rose more than 14% from January and 5% compared with a year ago, pulling down the refinance share to 41% of locks from 44% the month prior.

February also marked the first time the national average loan amount has rested above $400,000 for two consecutive months.

"February's data shows the market settling into a healthier balance between purchase and refinance activity as rates moved lower," said Mike Vough, Optimal Blue senior voice president of corporate strategy, in a press release Tuesday. "Purchase demand is back after a slow start to the year, but refinance share is still running at 41%, which is higher than anything we saw between early 2022 and late last year."

The 30-year fixed-rate mortgage fell below 6% at the end of last month for the first time since 2022, but inched back up last week.

Rate-and-term refinance locks increased 3% month over month and 280% year over year as well, while cash-out refinance volume grew 1% and 34%, respectively. 

Conforming loans made up 53% of total lock volume last month, which was 28 basis points less than their January share, but still 62 basis points more than last February. The nonconforming share rose to 16%, up 91 basis points month over month and 90 basis points year over year, the report found.

Federal Housing Administration, Department of Veterans Affairs and Department of Agriculture loans accounted for 17%, 13% and 1% of locks, respectively.

Secondary market data last month indicated execution dynamics shifted as pricing spreads widened and delivery strategies evolved, the report said.

Even as rates dropped, mortgage servicing rights for conforming 30-year loans increased two basis points to 1.18%, representing a 4.74 multiple.

Agency mortgage-backed securities securitizations represented 42% of hedged executions last month, down from 47% in January. Hedged loan sales to the agency cash window also grew 500 basis points month over month to 29%, the largest share of cash window deliveries in a year, according to the report.

"In an environment like this, lenders are paying close attention to how they execute and manage risk," Vough said. "We're seeing more active positioning across delivery channels and servicing assets as lenders balance near-term pricing with longer-term portfolio value."