More Mortgage Competition Could Mean Better Rates for Buyers

If you’re planning to buy a home in the next year, you’ve probably noticed something frustrating: even when mortgage rates dip a little, it doesn’t always feel like lenders are racing to offer you a better deal.

That could change.

Federal regulators are signaling they may ease certain mortgage-related requirements for banks – a shift that could encourage big banks to compete more aggressively in the mortgage market again. And when more lenders fight for your business, you’re often the one who wins.

Here’s what’s happening, why it matters, and how it could put you in a better position as a homebuyer.

The mortgage market has quietly changed since 2008

For years after the 2008 financial crisis, large banks gradually stepped back from mortgages. Not because they stopped wanting customers, but because mortgage lending and mortgage servicing became more expensive and more complicated under a new regulatory system built to prevent another crisis.

That retreat created space for non-bank lenders to take a much larger share of the market. Companies like Rocket Mortgage, United Wholesale Mortgage, loanDepot, and PennyMac became far more dominant than most buyers realize.

Federal Reserve Vice Chair for Supervision Michelle Bowman recently highlighted just how dramatic that shift has been. In 2008, banks originated around 60% of mortgages. By 2023, they originated only 35%. On the servicing side, banks once held servicing rights on about 95% of mortgage balances, but by 2023, that number had fallen to about 45%.

In plain English: the “big bank mortgage era” shrank, and non-bank lenders filled the gap.

Why this matters to you as a home buyer

If you’re planning to buy a home, you don’t need to know every detail of mortgage regulation to understand the impact. The part that matters is simple: who supplies mortgages affects how much leverage you have as a shopper.

When fewer types of lenders are actively competing for your business, there’s less pressure to improve pricing. But when more lenders enter the market competition tends to increase. And that can lead to better deals for borrowers.

This is especially important in today’s housing environment, where many buyers are stretching to make monthly payments work. When affordability is tight, even small improvements in pricing can have a real impact.

What regulators are considering now

Bowman’s comments suggest the Federal Reserve is rethinking whether post-2008 rules unintentionally pushed too much mortgage lending and servicing out of the traditional banking system.

At an American Bankers Association event, she said:

“We have seen a significant migration of mortgage origination and servicing out of the banking sector.”

She also pointed to specific areas where the Fed may consider changes.

One proposal would remove the requirement for banks to deduct mortgage servicing assets from regulatory capital, while still keeping a high risk weight assigned to those assets. Another idea would adjust capital requirements for mortgage loans in a way that is more sensitive to risk, potentially using loan-to-value ratios to determine the applicable risk weight instead of applying a uniform rule regardless of down payment.

These proposals are technical, but they all point toward the same potential outcome: banks could have more incentive to return to mortgages in a bigger way.

What mortgage competition actually means for you

It’s important to set expectations correctly.

Mortgage rates are still driven mainly by larger forces like inflation, Treasury yields, and the overall market for mortgage-backed securities. A regulatory shift won’t magically make mortgages cheap again.

But competition can influence something buyers feel very directly: the final deal you’re offered.

When lenders are competing aggressively, you’re more likely to see tighter pricing, fewer junk fees, and better incentives. That might show up as slightly lower rates, but it can also show up as lender credits that reduce your closing costs, lower origination charges, or more willingness to match competing offers.

And in a market where many buyers are comparing homes based on monthly payment, those details can matter just as much as the headline rate.

Why this could be happening now

There’s also a timing element worth paying attention to.

The housing market has been slowly thawing as buyers adjust to the higher-rate environment. Many lenders have been operating in a tougher volume environment than they were during the refinance boom years. If banks begin seeing mortgages as more attractive again, they may be motivated to compete harder, not only because they want to rebuild market share, but because the mortgage business is a natural way to bring in long-term customers.

This could create a more competitive environment just as more buyers start re-entering the market.

For prospective homebuyers, that’s a meaningful combination. Even if home prices remain high, stronger lender competition can still help improve affordability at the margins, and sometimes, that’s enough to make a deal workable.

Who might feel the pressure

This shift could be especially significant for non-bank lenders, many of which built their modern dominance during the post-2008 era. If banks return more aggressively, lenders like Rocket Mortgage, UWM, loanDepot, and PennyMac could face tighter margins and stiffer pricing competition.

At the same time, large institutions like Wells Fargo, Bank of America, and JPMorgan Chase could have a reason to claw back share, especially for mortgages that are sold to or guaranteed by government-sponsored agencies like Fannie Mae and Freddie Mac.

This matters because when large lenders with deep balance sheets compete for market share, pricing pressure often spreads across the industry. In other words, you don’t necessarily have to get your mortgage from a big bank to benefit. Even if you use a broker or a non-bank lender, the overall market may become more competitive.

What this doesn’t mean (and why that’s a good thing)

Whenever people hear that mortgage rules might be eased, it can trigger a fear of repeating the mistakes of the past.

But this isn’t a proposal to return to reckless lending.

Even if banks become more active in the mortgage market, borrowers will still need to qualify. Credit scores, income verification, and debt-to-income standards aren’t going away. Underwriting is still designed to ensure borrowers can afford the loan.

The potential change here is less about loosening borrower standards and more about shifting the incentives for banks to participate.

And that distinction matters.

Because the best version of this outcome is one where borrowers get more choices and better pricing, without sacrificing the stability that the post-2008 system was built to protect.

How to put yourself in the best position as a home buyer

If you’re planning to buy a home in the next 6 to 12 months, the biggest takeaway is that shopping your mortgage may become even more valuable.

In a more competitive market, lenders are more likely to offer incentives, negotiate fees, and adjust pricing to win your business. That means you may benefit more from comparing multiple offers than buyers did in the years when mortgage lending was dominated by a narrower set of players.

It also means you shouldn’t assume the best deal will automatically come from one type of lender. The best offer could come from a bank, a credit union, a broker, or a major non-bank lender, and the only way to know is to compare.

The bottom line

If regulators move forward with easing certain capital requirements, banks may find it more attractive to expand their mortgage business again. And if that happens, you could start to see more lenders competing directly for your loan.

That kind of competition doesn’t guarantee dramatically lower mortgage rates. Rates are still largely shaped by inflation, bond markets, and the broader economy. But competition does influence pricing, fees, and how aggressively lenders pursue borrowers.

If you’re planning to buy a home in the coming months, this potential shift could quietly improve your position. More lenders in the market often means more negotiating power, more options, and a better chance of finding a loan that truly fits your budget.

The mortgage landscape may be evolving, and if competition increases, prospective buyers like you could be the ones who benefit most.