Borrowers are still anchored to ultra-low, pandemic-era mortgage rates, a mindset that is influencing both purchase and refinance trends as the market heads into 2026.
That’s according to Mike Vough, Optimal Blue‘s senior vice president of corporate strategy, who highlighted the company’s latest Market Advantage report in a conversation this week with HousingWire at the Intercontinental Exchange ICE Experience (X26) conference in Las Vegas.
Vough discussed the impact of rate sensitivity on borrower behavior, the importance of managing risk in a volatile market, and the trends in nonqualified mortgage (non-QM) and debt-service-coverage ratio (DSCR) lending that are shaping the 2026 mortgage environment.
Editor’s note: This interview has been edited for length and clarity
Sarah Wolak: Given that the latest Market Advantage report is out, I wanted to talk about the current state of purchase and refinance activity. What is driving that activity on a macro level?
Mike Vough: I think it’s interesting in the February market report, you actually saw refinance share drop. So in January, it was closer to, like, 44% of the locks, but at the end of February, it was 41%. Now, the reason why that is, we see rates end the mortgage market index at 5.9%. That’s a psychological barrier for folks. And then we also saw our percentage share of ARMs hit a recent high of 10%.
So with those low rates and ARMs in mind — where if you squint, you’re getting something like a 5.25% rate — that’s helped support some purchase activity. On top of that, we’ve seen volatility-driven behavior. People who locked in the last few days may want to renegotiate, especially with how much rates have moved recently. Of course, activity happening overseas is also a factor.
Wolak: A lot of people have been talking about the psychological factors influencing borrower behavior right now, and it sounds like borrowers are still very rate sensitive, despite loan officers telling them that you can still lock in at a low-6% rate. Why do you think that narrative is persisting?
Vough: I think it’s hard to let go of a 2% or 3% rate. At this point, it takes a life event, such as your family expanding, debt or even a death. I think there’s this COVID-19 time warp that people are dealing with too. It doesn’t seem that far away, but it’s been six years now. … These American homeowners are still grounded to those low rates and think that is the norm.
But when borrowers are on the fence or thinking about refinancing, there are so many factors to consider. The monthly payment savings have to outweigh the transaction costs. There’s a lot to consider that makes this hurdle harder to jump over.
Wolak: In the latest report, you said that lenders are paying close attention to how they execute and manage risk. Could you expand a little bit on why?
Vough: Things are so competitive, and because margins are still really tight … lenders are making less compared to the 125-bps norm during COVID. And so, they need to be more conservative.
But when there’s volatility, it makes hedging more expensive. … If it also expands, they need to buffer their margins a little bit. When hedge costs increase, lenders need to buffer their margins, but at the same time, they can’t price themselves out of the market.
Wolak: I also wanted to ask about the rise in MSRs that Optimal Blue observed.
Vough: This has been really interesting to watch because, for the last two months, typically, when rates drop, the servicing valuations that we see in the marketplace should also drop, because prepayment risk increases.
But what’s been interesting, and this is a little bit of a theory, is I think what we’re seeing is the appetite for retention being reflected in valuations. So when people are pricing servicing, they may be pricing in one time through, or two or three times through that relationship.
Wolak: That’s interesting. I heard something similar at the recent MBA servicing conference — that M&A is shifting toward vertical integration, where companies want to own more of the borrower relationship.
Vough: That’s exactly right. Firms want to control more touch points across the loan lifecycle. And while they’re [trying to do] that, they’re also opening up technology considerations. So if I’m a lender and I’m using a subservicer, and that subservicer is owned by another lender, that creates tension. Do I want that relationship? Do I risk losing it? But from the borrower’s perspective it’s just, where does my payment go? What portal do I log into?
Wolak: Switching gears — what are you watching right now with origination trends?
Vough: Last year was kind of a high-water mark for non-QM. … It was part of almost every underwriting strategy. This year, we’ve actually seen that tail off a little bit in the first two months.
And then there’s also stuff happening in private credit. Some headlines from big Wall Street firms— questioning if there’s stress there. I don’t think it’s directly impacting things yet, but if that continues, it could trickle down into less availability of credit for those borrowers.
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