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Big banks retreated from mortgages after 2008—now this Fed governor wants them back

Since the 2008 housing bust and subsequent Great Financial Crisis (GFC), mortgage lending has steadily shifted away from big banks. In the years that followed—amid tighter regulations, higher capital requirements, and elevated litigation risk—many large banks, including Bank of America, JPMorgan Chase, and Wells Fargo, reduced their mortgage footprint. In that void, nonbank lenders, also known as independent mortgage banks (IMBs), such as Rocket Mortgage, United Wholesale Mortgage (UWM), and loanDepot, gained market share.

Now, a top Federal Reserve official is openly questioning whether policy and regulation went too far—and is signaling that a policy shift may be coming.

In a February 16 speech at the American Bankers Association’s Community Bankers Conference, Federal Reserve Vice Chair for Supervision Michelle Bowman pointed to what she described as a “significant migration” of mortgage origination and servicing out of the banking sector over the past 15 years.

According to Bowman:

• In 2008, banks originated around 60% of mortgages and held the servicing rights on about 95% of mortgage balances

• In 2023, banks originated around 35% of mortgages and held the servicing rights on about 45% of mortgage balances

That’s pretty in line with the data ResiClub pulled from the U.S. Department of the Treasury 👇

During her speech, Bowman suggested that post-2013 capital rules—particularly the treatment of Mortgage Servicing Rights (MSRs)* under Basel standards**—may have contributed to the mortgage retreat by banks. MSRs, which represent the expected value of servicing income when loans are sold into securitizations, were assigned higher risk weights and subject to deduction thresholds after the crisis. While regulators tightened those rules over concerns about valuation volatility and model risk, the capital treatment also made servicing and, by extension, mortgage origination less economically attractive for banks.

The result, Bowman implied, is a mortgage market increasingly concentrated in nonbank firms that lack deposit funding and operate under different supervisory and resolution frameworks. During the COVID-19 lockdowns, Bowman said, borrowers with bank servicers were more likely to receive forbearance than those serviced by nonbanks—highlighting structural differences that can matter during stress periods, she says.

Bowman previewed potential changes now under consideration, including removing the deduction requirement for MSRs and making mortgage capital rules more sensitive to loan-to-value ratios rather than applying a uniform risk weight. Such changes would not unwind post-crisis reforms but could modestly improve the economics of bank mortgage activity, Bowman says.

Big picture: If adopted, the proposals could mark the beginning of a gradual rebalancing in housing finance—one that brings more mortgage origination and servicing back inside the traditional banking system after more than a decade of migration outward.

*Mortgage Servicing Rights (MSRs) are the contractual rights to collect payments and manage a mortgage loan in exchange for a fee, typically 25–50 basis points of the outstanding balance. MSRs are financial assets that rise in value when mortgage rates increase and fall when refinancing activity surges.

**The Basel standards are international banking rules that require banks to hold minimum levels of capital against the risks they take. Post-2008 Basel reforms raised capital and liquidity requirements, making certain assets—including mortgages—more balance-sheet intensive for large banks.

40-year change in statewide home prices

• +794% —> Washington

• +715% —> Oregon

• +650% —> Hawaii

• +455% —> U.S. aggregate

One of the perks of our ResiClub PRO membership (B2C paid tier) is that ResiClub PRO members may incorporate ResiClub-branded charts and maps into their personal marketing materials.

Treasury Secretary Bessent will try to persuade House Republicans to pass Trump’s proposed institutional homebuying “ban”