Layla Zulfa
Leading financial institutions in the mortgage sector, long anchored by established operational models, are signaling a potential resurgence in their market activity. This renewed engagement hinges on forthcoming adjustments to capital regulations, which industry executives believe could introduce greater strategic flexibility. However, any significant recalibration of their mortgage strategies is anticipated to be a gradual process, unfolding over an extended period. For years, the dominant approach for depositories has centered on leveraging their existing customer relationships, encompassing a broad spectrum from high-net-worth individuals to first-time homebuyers. The cornerstone of their origination efforts has predominantly been the standard 30-year fixed-rate mortgage. These loans are typically facilitated through loan officers based in bank branches, while call centers are primarily tasked with pursuing refinancing opportunities. Notably, a substantial number of banks have historically eschewed significant investment in the wholesale mortgage channel, preferring to maintain a more controlled, direct-to-consumer or existing-client focus.
Alternatively, some institutions have strategically positioned themselves as crucial liquidity providers to other mortgage lenders. This B2B model often involves operating through correspondent channels or offering warehouse lending facilities. A consistent preference across the banking landscape has been the retention of mortgage servicing rights (MSRs). This strategy allows banks to maintain ongoing relationships with borrowers throughout the lifecycle of their loans, fostering loyalty and providing opportunities for cross-selling other financial products. Simultaneously, banks continue to invest in technological advancements aimed at accelerating closing times and enhancing customer retention.
The historical dominance of banks in the mortgage market is a stark contrast to their current standing. In the wake of the 2008 Great Financial Crisis, banks adopted a more conservative posture, which significantly impacted their market share. In 2008, banks accounted for approximately 60% of all mortgage originations and held a commanding 95% of MSR ownership. By 2023, these figures had diminished considerably, with banks originating roughly 35% of mortgages and holding about 45% of MSRs. Data from Intercontinental Exchange (ICE) further illustrates this trend, revealing that bank refinance retention stood at a mere 22% in the fourth quarter of 2025, a sharp decline from 50% in 2011. This significant erosion of market share underscores the challenges banks have faced in adapting to a rapidly evolving mortgage landscape.
However, this established dynamic is poised for potential alteration as regulatory bodies revisit capital requirements. Federal Reserve Vice Chair Michelle Bowman has publicly indicated that regulators are contemplating a recalibration of how residential mortgages and MSRs are treated under current capital rules. Proposed changes are expected to be released imminently, signaling a significant regulatory intervention. This initiative represents the second recent effort to modify these foundational rules. A more comprehensive Basel III proposal introduced in 2023 was ultimately withdrawn, suggesting a more targeted approach is now being pursued.
The Servicing Side: A Key Catalyst for Change
Vice Chair Bowman’s remarks have highlighted two potential areas for forthcoming proposals. The first concerns a review of the current 250% risk weight assigned to MSRs. Regulators are seeking public comment to determine an appropriate risk weighting. The second proposed change would introduce greater risk sensitivity for residential mortgage exposures. This could involve tying capital requirements more directly to loan-to-value (LTV) ratios, moving away from a uniform, standardized approach.
Steve Curley, chief banking officer of national business lines at Western Alliance, articulated the potential impact of such regulatory shifts. "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," Curley stated in an interview. "Even more importantly, the biggest change would be any sort of capital relief on mortgage servicing rights." Western Alliance’s mortgage segment operates on three core pillars: AmeriHome Mortgage’s correspondent lending platform, warehouse lending and MSR finance, and a balance-sheet mortgage portfolio that typically fluctuates between $12 billion and $14 billion. The bank strategically positions itself primarily as a liquidity provider to the broader mortgage industry.
AmeriHome, acquired by Western Alliance in 2021 for $1 billion, demonstrated significant growth, ranking as the sixth-largest mortgage lender in 2025 with $55 billion in origination volume, an increase of 17.8% year-over-year, according to data from Inside Mortgage Finance (IMF). This performance places AmeriHome as the second-largest bank lender in this segment, trailing only Chase, which originated $63.4 billion during the same period, marking a 33.7% year-over-year increase.
Curley further elaborated on the appeal of MSRs for Western Alliance. "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," he said. "We have to stay within our risk appetite, but Western Alliance likes the asset and wishes we could own more." He noted that MSRs typically generate yields of approximately 8% to 10%, offer a favorable risk profile, and come with the added benefit of custodial deposits. Despite the potential for significant shifts, Curley cautioned against immediate, sweeping changes. "I don’t think it’s going to change the business overnight," he remarked. "However, over time, I think revised capital rules would encourage more banks to participate in the mortgage market."
Evaluating the Risks and Incentives
If capital rules are revised in line with the suggestions from Federal Reserve officials, a segment of banks anticipates becoming more active in mortgage originations. Currently, however, the mortgage business often yields only single-digit returns on capital, making it less attractive compared to other lending categories, including unsecured loans, according to industry executives.
Raman Muralidharan, president of home mortgage at Citizens Bank, highlighted this disparity. "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," Muralidharan explained. "With changes in capital rules, that disparity reduces; it doesn’t completely go away, but it makes mortgages more competitive." Citizens Bank, the 30th-largest U.S. mortgage lender with $15.2 billion in volume in 2025 – a 36.9% increase year-over-year, per IMF – also holds the distinction of being the eighth-largest depository mortgage lender. The bank has set an ambitious goal to expand mortgage penetration among its existing customer base, with the aim of doubling the current share of clients who hold their mortgage with Citizens, which stands at approximately 6%.
Citizens views mortgages as a critical relationship product. Customers who have a mortgage with Citizens typically engage with about 3.2 other products offered by the bank, compared to an average of 1.9 products among those without a home loan. This deeper engagement translates into a significant reduction in customer attrition, estimated at roughly 75%, and a substantial increase in revenue from non-mortgage products, approximately 50%. In 2018, Citizens Bank acquired Franklin American Mortgage Co., but by 2023, it had ceased operations in its wholesale channel, with no current plans for re-entry. The bank’s strategic focus remains on retail and correspondent production, while actively retaining its servicing assets.
Muralidharan expressed optimism that revised capital rules would incentivize banks to allocate more capital towards jumbo mortgages and MSRs. Citizens advocates for a regulatory framework that is equitable across banks of varying sizes and more accurately reflects the risk characteristics of individual loans. "Our LTVs are below 70. We have great delinquency performance, very low losses, and the capital rule doesn’t reward that behavior," Muralidharan stated. "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."
A Wait-and-See Approach Amidst Macroeconomic Currents
While regulatory changes are a significant talking point, some banks are adopting a more cautious, wait-and-see stance. Their strategic planning is leaning more heavily on the broader macroeconomic outlook, particularly interest rate trends, as the primary driver of future growth, rather than solely on potential regulatory shifts. For many, the anticipated refinance wave represents the most immediate and tangible opportunity for increased activity.
The Mortgage Bankers Association (MBA) forecasts that if interest rates decline as anticipated, overall mortgage volume could experience a notable increase of approximately 8% in 2026, reaching an estimated $2.2 trillion. This projected volume includes a significant 34% share attributed to refinances.
Matt Vernon, head of consumer lending at Bank of America, acknowledged the ongoing discussions regarding capital rules. "We’re certainly paying attention to the discussions that are occurring from an interest perspective, and ultimately, if asked, will opine on that," Vernon said. "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." Bank of America primarily focuses on serving its extensive base of 67 million clients but also extends its mortgage origination services to non-customers. In 2025, the bank produced $26.3 billion in mortgage volume, a 24.7% increase year-over-year, positioning it as the 16th-largest U.S. mortgage lender, according to IMF data.
Bank of America employs a multi-channel sales force, encompassing local lending officers, call centers, and robust digital platforms. The bank’s growth strategy is centered on organic expansion rather than pursuing acquisitions. Vernon anticipates that 2026 could usher in a period of lower interest rates and improved housing affordability. While 30-year fixed-rate mortgages are expected to maintain their dominance, adjustable-rate mortgages (ARMs) are showing a gradual increase, nearing 10% of originations. Home equity lines of credit (HELOCs) remain a core strategic offering for banks, as homeowners increasingly leverage rising equity levels. Bank of America also aims to maintain its competitive edge through comprehensive product offerings and proactive down payment assistance programs. "We have all of the clients that we need, it’s just deeper penetration of that opportunity," Vernon concluded.
At U.S. Bank, the 10th-largest U.S. mortgage lender with $38.5 billion in volume in 2025 – a 3.4% year-over-year increase – executives are also awaiting greater clarity on the forthcoming capital requirements. U.S. Bank maintains a balanced approach, focusing on both purchase and refinance lending. John Hummel, head of retail home lending at U.S. Bank, described mortgages as the "tip of the spear," providing crucial insights into borrowers’ broader financial profiles and opening avenues for deeper relationship development across other product lines. The bank operates a multi-channel mortgage platform that includes retail, consumer-direct, and correspondent production. In 2022, U.S. Bank closed the wholesale mortgage businesses it inherited through the acquisition of MUFG Union Bank. Furthermore, U.S. Bank offers specialized services such as corporate relocation lending for Fortune 500 companies and programs administered by housing finance agencies, contributing to a diversified client base, according to Hummel.
"We are, as an industry, all waiting to see what the final rule is on Basel III," Hummel stated. "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." The prolonged period of regulatory uncertainty has led many institutions to prioritize existing business strategies while closely monitoring the evolving regulatory landscape for potential opportunities. The long-awaited finalization of these Basel III rules is expected to provide the necessary clarity for banks to make more definitive strategic adjustments in the mortgage market.
