Banks eye mortgage growth if Basel III capital rules ease

"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."

"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."

"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."

Major banks including Western Alliance, Citizens, Bank of America, and U.S. Bank indicate potential strategic shifts in mortgage lending if Basel III capital rules are recalibrated. Banks have historically maintained conservative mortgage strategies post-2008 financial crisis, focusing on existing customer bases and 30-year fixed-rate mortgages through branch loan officers. Most retain mortgage servicing rights to maintain borrower relationships. Bank market share declined significantly from 60% of originations in 2008 to 35% by 2023, and MSR ownership fell from 95% to 45%. Refi retention dropped to 22% in Q4 2025 from 50% in 2011. Regulatory changes potentially lowering MSR risk weights and making mortgage capital more LTV-sensitive could incentivize increased bank participation, though executives expect any transition to occur gradually.

Read at www.housingwire.com