Banks Eye Bigger Role In Mortgages As Regulators Reconsider Capital Rules

Top banks in the mortgage space, which have relied on a similar playbook for years, say they could become more active if upcoming changes to capital rules provide more flexibility, several industry executives told HousingWire. But any shift in strategy is expected to take time.

Depositories typically focus on their existing customer base, ranging from wealthy clients to first-time homebuyers, with a heavy emphasis on standard 30-year fixed-rate mortgages. Originations are largely driven through loan officers in bank branches, while call centers pursue refinancing opportunities. Most banks have avoided investing in the wholesale channel.

Some institutions instead position themselves primarily as liquidity providers to other lenders, operating as business-to-business banks with correspondent channels or warehouse lending, for example. Overall, banks prefer to retain mortgage servicing rights (MSRs), allowing them to maintain relationships with borrowers throughout the life of a loan. At the same time, banks continue to invest in technology aimed at shortening closing times and improving customer retention.

Banks once dominated the mortgage market. In 2008, they accounted for roughly 60% of mortgage originations and about 95% of MSR ownership. By 2023, however — after adopting a more conservative posture following the Great Financial Crisis — these shares had fallen to roughly 35% and 45%, respectively. Bank refi retention was at 22% in the fourth quarter of 2025, compared to 50% in 2011, according to Intercontinental Exchange (ICE) data.

But that dynamic could shift as regulators revisit capital requirements. Federal Reserve Vice Chair Michelle Bowman recently said regulators are considering recalibrating how residential mortgages and MSRs are treated under capital rules, with proposed changes expected to be released in the coming days.

This would be the second recent attempt to change the rules. A broader Basel III proposal introduced in 2023 was later abandoned.

The servicing side

Bowman signaled two potential forthcoming proposals. One would review the 250% risk weight applied to MSRs while seeking public comment on what level would be appropriate instead. The other would introduce greater risk sensitivity for residential mortgage exposures, potentially tying capital requirements to loan-to-value (LTV) ratios rather than applying a uniform standard.

“Any changes to Basel III that make mortgage loans easier to put on our balance sheet, or anything that would reduce the risk weight of warehouse lending, would make us interested,” Steve Curley, chief banking officer of national business lines at Western Alliance, said in an interview. “Even more importantly, the biggest change would be any sort of capital relief on mortgage servicing rights.”

At Western Alliance, the mortgage segment rests on three pillars: AmeriHome Mortgage’s correspondent lending platform; warehouse lending and MSR finance; and a balance-sheet mortgage portfolio that typically ranges between $12 billion and $14 billion. The bank positions itself primarily as a liquidity provider to the mortgage industry

AmeriHome, acquired in 2021 for $1 billion, ranked as the sixth-largest mortgage lender in 2025 with $55 billion in origination volume, up 17.8% year over year, according to Inside Mortgage Finance (IMF). And it’s the second-largest bank lender after Chase, which originated $63.4 billion in the same period, up 33.7% year over year.

“We have approximately $1 billion in mortgage MSRs on our balance sheet, which is about 1% of our total assets. We would consider increasing our exposure if they reduce the risk weight of MSRs,” Curley said. “We have to stay within our risk appetite, but Western Alliance likes the asset and wishes we could own more.”

According to Curley, MSRs generate yields of about 8% to 10%, offer a favorable risk profile and come with custodial deposits.

“I don’t think it’s going to change the business overnight,” Curley said. “However, over time, I think revised capital rules would encourage more banks to participate in the mortgage market.”

Evaluating the risks

If capital rules are revised along the lines recently suggested by Fed officials, some banks expect to become more active in mortgage originations. For now, however, the business often generates only single-digit returns on capital, making it less attractive than other lending categories, including unsecured loans, executives said.

“Taking into account differences in risk profile and risk-adjusted rates of return, the incentives under current capital rules are for banks to invest more in other lending areas,” said Raman Muralidharan, president of home mortgage at Citizens Bank. “With changes in capital rules, that disparity reduces; it doesn’t completely go away, but it makes mortgages more competitive.”

Citizens, the 30th-largest U.S. mortgage lender with $15.2 billion in volume in 2025 — up 36.9% year over year, per IMF— is also the eighth-largest depository mortgage lender. It aims to expand mortgage penetration among its existing customers. Currently, only about 6% of the bank’s clients have their mortgage with Citizens, and the goal is to double that share over time.

The bank sees mortgages as a key relationship product. Customers who hold a mortgage with Citizens have about 3.2 products with the bank, compared with 1.9 products among those without a home loan. Attrition falls by roughly 75% in the former relationships, while revenue from non-mortgage products increases by about 50%.

In 2018, the bank acquired Franklin American Mortgage Co., but in 2023 it shut down its wholesale channel and has no plans to reenter, focusing instead on retail and correspondent production while retaining its servicing assets.

Muralidharan believes that changes to capital rules will make banks more willing to deploy capital toward jumbo mortgages and MSRs. Citizens supports a regulatory framework that applies across banks of different sizes and better accounts for loan risk characteristics.

“Our LTVs are below 70. We have great delinquency performance, very low losses, and the capital rule doesn’t reward that behavior,” Muralidharan said. “The new regs, which sort of allow you to distinguish capital levels based upon risk, are also really important, because that will allow us to lean in even more to the kinds of mortgages we make, which are low risk.”

Wait-and-see approach

Some banks are taking a wait-and-see stance, relying more on the broader macroeconomic outlook than on potential regulatory changes to drive growth. For many, an expected refinance wave represents the most immediate opportunity.

If rates decline as anticipated, overall mortgage volume could rise about 8% in 2026 to roughly $2.2 trillion, including a 34% share for refis, according to the Mortgage Bankers Association.

“We’re certainly paying attention to the discussions that are occurring from an interest perspective, and ultimately, if asked, will opine on that,” said Matt Vernon, head of consumer lending at Bank of America. “But I don’t know that, frankly, it would change our strategy from a broader perspective, because ultimately, we have the tools and resources within our current infrastructure to support our clients.”

The bank focuses primarily on serving its 67 million clients but also originates mortgages for non-customers. It produced $26.3 billion in mortgage volume in 2025, up 24.7% year over year, ranking as the 16th-largest U.S. mortgage lender, per IMF.

BofA relies on a multichannel sales force that includes local lending officers, call centers and digital platforms, and it aims to grow organically rather than through acquisitions.

Vernon said 2026 could bring lower rates and improved affordability. While 30-year fixed mortgages are expected to remain dominant, adjustable-rate mortgages are rising nearer to 10% of originations.

Home equity lines of credit remain a core bank strategy as homeowners tap rising equity levels. BofA also seeks to maintain a competitive edge through comprehensive product offerings and down payment assistance programs.

“We have all of the clients that we need, it’s just deeper penetration of that opportunity,” Vernon said. 

At U.S. Bank, the 10th-largest U.S. mortgage lender with $38.5 billion in volume in 2025 — up 3.4% year over year — executives are waiting for clarity on new capital requirements.

U.S. Bank maintains a balanced focus on purchase and refinance lending. Mortgages serve as the “tip of the spear,” said John Hummel, its head of retail home lending, and they provide insight into borrowers’ broader financial profiles while opening opportunities to deepen relationships across other products.

The bank operates a multichannel mortgage platform that includes retail, consumer-direct and correspondent production. In 2022, the bank closed the wholesale mortgage businesses it inherited in the acquisition of  MUFG Union Bank. U.S. Bank also offers specialized services such as corporate relocation lending for Fortune 500 companies and housing finance agency programs, resulting in a diversified client base, Hummel said.

“We are, as an industry, all waiting to see what the final rule is on Basel III,” Hummel said. “I wouldn’t say it has influenced our strategy at all, and quite frankly, it’s been several years since the initial proposal came out and went out for opinion, and now it’s still forthcoming.”