Reviving the Mortgage Market: A Potential Shift Towards Bank Involvement

The mortgage industry may be on the cusp of change as comments from Federal Reserve Vice Chair Michelle Bowman suggest a possible return of banks to a more central role in mortgage lending. This shift could have significant implications for both consumers and mortgage brokers alike.

A Call for Change in the Mortgage Landscape

Bowman highlighted alarming trends showing that banks’ share of mortgage origination has plummeted from 60% in 2008 to a mere 35% in 2023. This decline is mirrored in servicing rights, which have dropped dramatically from 95% to 35% over the same period. Experts like Marty Green, a principal at mortgage law firm Polunsky Beitel Green, believe that a re-evaluation of the regulatory framework could encourage greater bank participation in mortgage lending.

Addressing Systemic Risks

Green voiced concerns regarding the concentration of mortgage servicing in non-bank entities, which could pose systemic risks in times of financial stress. He advocates for a balanced approach, emphasizing that while banks need to return to the mortgage space, it must be done thoughtfully to avoid repeating the mistakes of the past. The liquidity issues faced by non-bank servicers in volatile markets further underscore the need for a diverse mortgage lending landscape that includes banks.

Opportunities for Brokers and the Market

Despite initial apprehensions, Green believes increased bank involvement may enhance opportunities for mortgage brokers. As banks might explore expanding their networks into wholesale operations, brokers could benefit from more options and flexibility. This shift could potentially invigorate the marketplace, leading to competitive pricing for mortgage servicing rights.

Looking Ahead: The Road to Change

While the prospect of banks increasing their share in the mortgage market is promising, experts warn that meaningful changes are still likely years away. Green posits that it may take until at least 2027 for substantial proposals to emerge from the regulatory discussions initiated by Bowman's comments. This period of contemplation is crucial for ensuring that any future developments strengthen the industry while safeguarding consumers.

In summary, the potential return of banks to mortgage lending is generating cautious optimism within the industry. If approached carefully, this shift could rejuvenate the market and offer a wider array of opportunities for mortgage brokers and consumers alike.