Are Banks Heading Back To
Looser Lending Standards?
Recent moves from U.S. financial regulators suggest banks could play a larger role in mortgage lending again -- Potentially making loans easier and more affordable for qualified borrowers.
What’s Changing in Bank Lending Rules
For years, stricter post-2008 financial crisis regulations limited how aggressively banks could write new mortgages. These rules — designed to prevent the kinds of risky lending that contributed to the housing collapse — made it more expensive and complex for banks to hold and service home loans.
Now, regulators are considering adjustments that would ease some of those constraints:
- One proposal would lower the leverage ratio requirement for smaller, community banks, giving them more flexibility to lend without having to maintain as much capital relative to their assets.
- Officials are also exploring changes to how banks account for mortgage servicing assets, which could make it cheaper for banks to service loans they originate instead of selling them off.
The goal, regulators say, is to strike a balance: keep safeguards in place to protect the financial system while enabling banks — especially local institutions — to compete more effectively for mortgage business.
Why This Matters for Borrowers
If these reforms move forward:
- Home loan availability could improve, especially for community lenders that traditionally underwrite smaller mortgages. More lenders competing for loans can lead to better pricing and terms for borrowers.
- Small investors — like buy-and-hold landlords or property flippers — may find it easier to secure financing with competitive rates.
Industry groups have pointed out that the current regulatory framework has made some banks reluctant to participate robustly in mortgage origination and servicing, ceding market share to nonbank lenders and specialty finance companies.
Banks Have Strong Balance Sheets
Many traditional banks entered this cycle with significant capital and robust profitability, giving them room to take on more lending risk than they have in recent years. This provides comfort to regulators that easing certain requirements won’t undermine financial stability.
That said, any regulatory revisions would still maintain core consumer protections put in place after the crisis — such as thorough income verification and limits on loan features that were widespread before 2008 (like negative amortization or very low initial payments).
What to Watch Next
These proposals are still under discussion, and it will take time for formal rule changes to be finalized and implemented. The debate reflects broader tensions in housing finance: how to encourage credit availability without re-introducing the types of risk that contributed to the 2008 housing crash.
