Key Takeaways
- • Federal Reserve Vice Chair Michelle Bowman signaled forthcoming capital rule changes designed to strengthen banks' role in mortgage origination and servicing, addressing a long-term structural shift away from traditional banking institutions.
- • Banks' share of mortgage origination collapsed from approximately 60% in 2008 to 35% by 2023, while their servicing share dropped from 95% to 45% over the same period—a trend the Fed views as a financial stability and resilience concern.
- • The Federal Reserve is considering regulatory recalibration of capital rules and mortgage servicing rights (MSR) treatment to improve bank competitiveness and incentivize participation in mortgage origination and servicing activities.
- • The Mortgage Bankers Association endorsed the Fed's approach, stating that revised capital framework treatment of mortgage servicing rights and loans will strengthen banks' ability to serve creditworthy borrowers while maintaining safety and soundness.
- • U.S. mortgage originations are projected to reach $2.27 trillion in 2026, representing a 13% increase over 2025, driven by slowing economic growth and easing conditions, creating strategic opportunities for recalibrated bank participation.
Summary
Federal Reserve Vice Chair Michelle Bowman has signaled a strategic regulatory shift aimed at revitalizing traditional banks' participation in mortgage origination and servicing—markets where nonbank lenders have gained substantial ground over the past 15 years. Speaking at the American Bankers Association 2026 Community Bankers Conference, Bowman articulated concerns about the long-term migration of mortgage market activity away from banks to nonbank firms, citing implications for financial stability, consumer choice, and industry resilience.
The data underlying the Fed's concern is striking. Banks' share of mortgage origination fell from approximately 60% in 2008 to just 35% by 2023. Over the same period, their share of mortgage servicing declined sharply from roughly 95% to 45%. This structural shift reflects both competitive pressures and regulatory capital treatment that has inadvertently discouraged bank participation in these activities.
Bowman signaled the Federal Reserve's willingness to pursue targeted regulatory changes, with particular emphasis on the treatment of mortgage servicing rights (MSRs)—the contractual value of future income from servicing mortgages after securitization. The Fed is examining how current capital rules influence bank incentives and exploring recalibration approaches to restore competitive balance. The Mortgage Bankers Association promptly endorsed this direction, with President and CEO Bob Broeksmit stating that revised capital framework treatment "will strengthen banks' ability to serve creditworthy borrowers while maintaining safety and soundness."
Market conditions are favorable for implementation of such policy changes. Mortgage originations are projected to climb to $2.27 trillion in 2026, a 13% increase over 2025, supported by slowing economic growth and easing financial conditions. This environment creates a window for structural policy adjustment that could reshape competitive dynamics in a market where nonbank participants currently dominate origination activity among the ten largest lenders by volume.
The data underlying the Fed's concern is striking. Banks' share of mortgage origination fell from approximately 60% in 2008 to just 35% by 2023. Over the same period, their share of mortgage servicing declined sharply from roughly 95% to 45%. This structural shift reflects both competitive pressures and regulatory capital treatment that has inadvertently discouraged bank participation in these activities.
Bowman signaled the Federal Reserve's willingness to pursue targeted regulatory changes, with particular emphasis on the treatment of mortgage servicing rights (MSRs)—the contractual value of future income from servicing mortgages after securitization. The Fed is examining how current capital rules influence bank incentives and exploring recalibration approaches to restore competitive balance. The Mortgage Bankers Association promptly endorsed this direction, with President and CEO Bob Broeksmit stating that revised capital framework treatment "will strengthen banks' ability to serve creditworthy borrowers while maintaining safety and soundness."
Market conditions are favorable for implementation of such policy changes. Mortgage originations are projected to climb to $2.27 trillion in 2026, a 13% increase over 2025, supported by slowing economic growth and easing financial conditions. This environment creates a window for structural policy adjustment that could reshape competitive dynamics in a market where nonbank participants currently dominate origination activity among the ten largest lenders by volume.
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