Mortgage Research Network Podcast

Welcome to the Mortgage Research Network Podcast. We bring you the latest mortgage and real estate news 3 times a week. The audio is AI generated, but content is fact-checked by me, Tim Lucas, editor of MortgageResearch.com and a former mortgage professional. And with me is Craig Berry, a mortgage originator with 25 years experience. Craig, so here’s something wild—back in 2008, banks were responsible for originating 60% of mortgages and servicing 95% of mortgage balances. Fast forward to today, and those numbers have plummeted to 35% and 45%. That’s a massive shift in less than 20 years.

It really is, and it makes you wonder—what happened? How did banks go from dominating the mortgage market to taking such a backseat? And more importantly, why is the Federal Reserve so eager to bring them back into the fold now?

Well, the Fed seems to think that the rise of nonbank lenders—companies like Rocket Mortgage and United Wholesale Mortgage—has created vulnerabilities in the system. Unlike banks, these nonbank lenders don’t have access to the same safety nets, like government loans during a financial crisis. That makes them more fragile, especially during economic downturns.

And banks, by comparison, are much more diversified. They’re not just in the mortgage business—they’ve got other revenue streams to lean on when times get tough. That kind of stability is something nonbanks just can’t replicate, and it’s a big reason why the Fed wants banks to play a larger role again.

Exactly. But it’s not just about stability. Michelle Bowman, the Fed’s vice chair for supervision, made a strong case for how this could benefit consumers. She pointed out that fewer banks in the mortgage market means less competition, which can drive up costs for borrowers. And during financial crises, borrowers with nonbank servicers often fare worse than those serviced by banks.

That’s such an important point. Bowman even mentioned the COVID-19 pandemic as an example. Borrowers with bank servicers were more likely to get forbearance on their mortgage payments compared to those with nonbank servicers. That’s a pretty compelling argument for why banks should be more involved.

Absolutely. But here’s the thing—getting banks back into the mortgage market isn’t as simple as just asking them to do it. There are real financial and regulatory hurdles that make it less appealing for banks to get involved. Bowman outlined two major reforms the Fed is considering to address this.

Right, the first one is about capital requirements. Banks currently have to hold a certain amount of money in reserve when they issue a mortgage, and that amount can be disproportionately high for loans where the borrower makes a large down payment. The Fed wants to reduce those requirements to make it less costly for banks to originate loans.

And the second reform is about how mortgage servicing rights are accounted for on a bank’s balance sheet. These rights allow banks to collect payments and manage accounts for a mortgage, but the current accounting rules make them less attractive to hold. Changing those rules could make servicing rights more appealing and free up capital for issuing more loans.

Both of these changes are aimed at making it easier and more profitable for banks to get back into the mortgage market. And if that happens, we could see more competition among lenders, which could lead to lower rates and fees for consumers. That’s the hope, anyway.

Yeah, but there’s also a potential downside here. These reforms are part of a broader effort to roll back some of the regulations that were put in place after the 2008 financial crisis, specifically the Dodd-Frank Act. That legislation was designed to prevent another meltdown, so any changes to it need to be approached with extreme caution.

Definitely. The last thing anyone wants is to create conditions that could lead to another financial crisis. It’s a delicate balance—on one hand, you want to make the mortgage market more competitive and stable, but on the other hand, you don’t want to undermine the safeguards that are already in place.

Exactly. And let’s not forget, banks haven’t completely abandoned the mortgage market. According to the Mortgage Bankers Association, JPMorgan Chase and U.S. Bank were the fourth and fifth largest mortgage lenders in the country in 2024. So, they’re still in the game, just not at the same level they were before.

True, but the top spots are dominated by nonbank lenders. If the Fed’s plan works and banks start taking a bigger share of the market, it’s going to be a game-changer for these nonbank players.

No doubt about it. And it’s worth noting that banks like Citi, Bank of America, and Citizens actually rank very highly in customer satisfaction surveys. According to the J.D. Power 2025 U.S. Mortgage Origination Satisfaction Study, they occupy the top three slots. So, if banks do re-enter the market in a big way, they could potentially bring a strong customer service game along with them.

That’s a great point. And it underscores why this shift could be good for consumers. More competition means lenders have to work harder to win and keep customers, which could lead to better service, lower costs, or both.

Of course, all of this is still in the planning stages. The Fed has said they’re going to consult with all interested parties before taking any action. So, it’s not like these changes are going to happen overnight.

No, but the fact that these discussions are happening at all is significant. It shows that the Fed is taking a hard look at the mortgage market and trying to figure out how to make it work better for everyone—banks, consumers, and the broader financial system.

And that’s a good thing. But like we said earlier, it’s crucial that any reforms are implemented carefully. The last thing anyone wants is to repeat the mistakes that led to the 2008 financial crisis.

Agreed. So, to sum it up, the Fed is looking to bring banks back into the mortgage market by making it less costly for them to originate and service loans. The hope is that this will increase competition, lower costs for consumers, and make the system more stable overall. But it’s a delicate balance, and it’s going to require a lot of careful planning and oversight.

Exactly. It’s a complex issue with a lot of moving parts, but it’s definitely something worth keeping an eye on. The mortgage market affects so many aspects of the economy, and any changes to it are bound to have ripple effects. That's about all the time we have for this topic, but we go into even more detail on the site. For more, search "federal reserve's mortgage plan" at Mortgage research.com. We'll see you next time on the Mortgage Research Network Podcast