Proposed US Rule Could Change How You Shop for a Mortgage — Here’s How
Written by
Lydia Kibet
Edited by
Zuri Anderson
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If you’ve applied for a mortgage in the past few years, chances are you didn’t get it from a traditional bank. Instead, you may have worked with a non-bank lender like Rocket Mortgage, New American Funding, or Pennymac.
This is a result of regulations that quietly pushed banks out of the mortgage market over the past decade. Now, a proposed regulatory change could bring banks back into the mortgage market and potentially change how you shop for a home loan.
Why Banks Stepped Back From Originating and Servicing Mortgages
Many banks stopped originating and servicing mortgages after the 2008 financial crisis due to the new rules that made it more expensive for them to offer home loans.
Back then, banks originated roughly 60% of mortgages and serviced about 95% of mortgage balances. As of 2023, those numbers have dropped significantly to 35% and 45%, respectively. This is the reason why nonbank lenders are dominating the market and borrowers now have fewer options than they may realize.
What the Proposed Rule Would Change
Federal Reserve Vice Chair for Supervision Michelle Bowman recently outlined two key regulatory changes aimed at bringing banks back into the mortgage market.
First, the proposal would eliminate the requirement for banks to deduct mortgage servicing rights from regulatory capital while keeping a 250% risk weight. This would make mortgage lending more attractive for big banks because servicing will be less costly.
Second, it would make capital requirements more sensitive to loan-to-value (LTV) ratios. Instead of applying the same risk weight to all mortgages, banks could hold less capital for loans where borrowers make larger down payments.
“Low-LTV mortgages carry low expected losses,” Bowman noted, adding that capital rules should better reflect actual risk.
If the Federal Reserve adopts this proposal and banks return to the mortgage market, that could mean more options and potentially lower costs for borrowers.
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