Basel III Revision Debate Housing and Banking Groups Call for Capital Relief
A coalition of leading housing and banking organizations is urging federal regulators to revise mortgage capital rules, arguing that current standards are limiting bank participation in home lending.
In a joint letter to the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corporation, eight major industry groups called for changes to capital requirements tied to residential mortgages. Their goal: encourage banks to reengage in mortgage origination, servicing, and securitization.
At the center of the debate is the proposed Basel III Endgame rule, designed to strengthen bank capital levels following the financial crisis. Industry leaders argue that some of the rule’s provisions no longer reflect today’s mortgage market, which they describe as more stable and tightly regulated than it was in 2008.
They point to several areas of concern, including high risk weights for single-family mortgages, strict capital treatment of mortgage servicing rights, and elevated requirements for warehouse lending. Notably, bank servicing share has fallen from 88% in 2013 to just 39% in 2024, as more activity has shifted to non-bank lenders.
The coalition is requesting more risk-sensitive capital treatment, proper recognition of private mortgage insurance, and lower risk weights on certain mortgage-related assets. They argue that these changes would strengthen affordability and increase competition without undermining financial stability.
Regulators have signaled openness to reviewing capital standards, but any revisions would require formal rulemaking. While the impact would not be immediate for homebuyers, greater bank participation over time could expand credit availability in a market still facing affordability pressures.
The broader question remains: how to balance financial system safety with sustainable access to mortgage credit.
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