The conforming mortgage share hit a record low in December
At the end of 2024, mortgage borrowers shifted their attention from conforming mortgages to refinancing options. A report released on Tuesday by Optimal Blue found that the conforming loan share fell to an all-time low in December.
Optimal Blues December 2024 Market Benefit Report is a monthly survey that analyzes key indicators to provide insight into trends in the U.S. mortgage market. The report uses lender rate lock data from the company’s product and pricing engine (PPE).
According to Optimal Blue, mortgage volume rose 26% year over year in December, but fell 8% compared to November. The annual increase was driven by an 18% increase in purchase freezes, a 43% increase in cash-out refinancings and an 82% spike in interest rate and term refinancings.
More refis in December took market share away from other types of loans, including conforming loans. The refinancing share of activity rose to 24%, the highest share since September. This was caused by an interest rate and term refinancing wave of 33% compared to November. Of the 20 largest U.S. metropolitan areas, Los Angeles had the highest share of refinancing activity (34%).
“December’s data illustrates how the market can adapt to changing conditions,” Brennan O’Connell, director of data solutions at Optimal Blue, said in a statement. “While a seasonal dip was expected, year-on-year growth reflects resilience and increasing demand for refinancing options driven by interest rate adjustments.
“Notably, the share of conforming loans has hovered around an all-time low over the past five months, reaching 51% last month. This trend illustrates how borrowers are increasingly reliant on government and non-conforming loans for their financing in a challenging market.”
The share of conforming loans fell 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 rates likely played a role, with the 30-year conforming rate rising 16 basis points (bps) from November to 6.83% in December, Optimal Blue said.
While conforming loans became less common, Federal Housing Administration (FHA), The U.S. Department of Veterans Affairs (VA) and non-conforming loan types gained ground. FHA loans increased to 21% of all lock activity, with non-conforming loans at 16% and VA loans at 11.5%.
The creditworthiness of borrowers also increased last year. According to Optimal Blue, average credit scores rose steadily each month through 2024, but average credit scores for purchase and interest rate and term refinance locks fell last month to 737 and 727, respectively. The average credit score for cash-out refi borrowers rose to 697.
Meanwhile, the average loan amount stagnated as home prices cooled. According to Optimal Blue, the average loan amount increased to $376,900, while the average sales price decreased to $473,700.
