Banks Won’t Rush Back To Mortgages Under Revised Basel III

MoneyBanking & InsuranceBanks Won’t Rush Back To Mortgages Under Revised Basel IIIByMayra Rodriguez Valladares,Senior Contributor.Follow AuthorApr 28, 2026, 09:15pm EDT--:-- / --:--This voice experience is generated by AI. Learn more.This voice experience is generated by AI. Learn more.Revised Basel III Rules Will Not Necessarily Bring Banks Back To Mortgage LendinggettyOn March 19, 2026, the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation released three Notices of Proposed Rulemaking to revise bank capital requirements. A stated rationale was clear: lighter capital rules would coax banks back into the mortgage market, helping more Americans buy homes. It is a compelling story. It is also, according to an overwhelming and bipartisan chorus of academics, ratings agencies, bank analysts, and even the mortgage industry's own trade group, almost certainly wrong. And I said this at the House Committee on Financial Services hearing “Prioritizing Main Street: Evaluating the Impact of Capital Proposals on Economic Growth and American Communities.” I also detailed my analysis in my written testimony.The Mortgage Argument, ExaminedThe most frequently cited consumer benefit of the NPRs is a revival of bank mortgage lending. The argument goes: lower capital requirements reduce the cost banks incur when originating and holding mortgages, making the business more attractive and the loans cheaper. There is a kernel of truth buried in this logic — but only a kernel.The most structurally significant mortgage-related change is the elimination of the MSA capital deduction threshold. Under the current rule, mortgage servicing assets (MSAs) that exceed 25% of a bank's CET1 must be deducted dollar-for-dollar from capital. That deduction has long functioned as a hidden tax on mortgage origination: when a bank sells a mortgage into the secondary market while retaining servicing rights, a large MSA position forces i...