Written by: Internal Analysis & Opinion Writers
As the U.S. housing market slows under the weight of high interest rates and shrinking affordability, major banks are lobbying regulators for a revamp of mortgage rules they say are outdated and overly restrictive. Industry leaders argue that simplifying the current framework could ease lending bottlenecks and bring more borrowers back into the market—especially first-time buyers and lower-income households.
The push comes as home sales continue to slump and mortgage originations sit well below historical norms. Banks such as JPMorgan Chase, Wells Fargo, and Bank of America are urging federal regulators, including the Consumer Financial Protection Bureau (CFPB) and the Federal Housing Finance Agency (FHFA), to reassess policies introduced after the 2008 financial crisis. These institutions claim that some of those rules, while well-intentioned, are now counterproductive and limit their ability to serve creditworthy borrowers.
At the heart of the conversation is the Qualified Mortgage (QM) rule—a set of guidelines that determines which loans are deemed safe enough to be eligible for government backing. Under current rules, loans must meet strict criteria on debt-to-income ratios, underwriting standards, and documentation requirements in order to qualify. While these measures were put in place to prevent risky lending practices, banks argue they now serve as a barrier for many potential buyers who don't fit neatly into the regulatory framework.
Executives from several large banks have voiced frustration over the rigidity of these guidelines, which they say exclude a growing segment of the population that earns nontraditional income or holds student loan debt. Borrowers like freelancers, gig workers, and those with side businesses often find it difficult to provide documentation that aligns with current underwriting models, even when their financial positions are stable.
Some lenders have called for adjustments to how income is verified and how debt burdens are calculated. They suggest that the existing 43% debt-to-income cap used for many QM loans could be updated or waived in certain cases where other compensating factors exist, such as significant savings, high credit scores, or long-term employment history.
The banking industry is also pressing for more clarity and consistency in how regulators interpret fair lending laws. Financial institutions argue that the threat of legal action under the Equal Credit Opportunity Act or the Fair Housing Act often discourages lenders from adopting flexible underwriting strategies—even when those strategies could increase access to credit without compromising loan quality.
Industry advocates are quick to point out that their request is not to dismantle consumer protections, but rather to modernize the rules to reflect today’s economic and demographic realities. They argue that with more sophisticated data modeling and improved risk assessment tools now available, the mortgage industry is better equipped to manage risk than it was in 2008, when many of the rules were written.
Housing policy analysts note that this discussion comes at a pivotal time. The housing market has cooled significantly from its pandemic-era boom, with mortgage rates hovering above 6.8% and affordability hitting a multi-decade low. Sales of existing homes have dropped sharply, and new construction is also facing headwinds from rising material costs and labor shortages.
In this environment, banks see an opportunity to expand mortgage availability to underserved groups without returning to the kind of risky lending that defined the years leading up to the financial crisis. They point to recent studies showing that large swaths of the population—including minorities and millennials—are disproportionately impacted by tight credit standards, even as their overall financial health improves.
Critics, however, caution against any loosening of rules that could reintroduce systemic risk. Consumer advocates worry that relaxing guidelines could pave the way for higher default rates, especially if lenders begin to compete for market share by cutting corners on documentation and due diligence. They argue that reforms must be balanced carefully against the lessons learned during the last housing collapse.
Regulators, for their part, appear open to reviewing the current rules, though they have not committed to specific changes. In recent statements, CFPB officials acknowledged the need to modernize regulatory frameworks, particularly as more Americans engage in gig work or earn variable income streams. However, they emphasize that any modifications would need to maintain strong consumer protections and promote long-term stability in the housing finance system.
The FHFA, which oversees Fannie Mae and Freddie Mac, has also expressed interest in streamlining loan approvals while keeping risk in check. Both agencies have indicated they are studying ways to support broader access to credit through pilot programs and alternative underwriting models, particularly those that factor in rent payments and cash-flow data in place of traditional credit metrics.
Still, any regulatory shift is likely to take time. The process for amending federal rules involves public comment periods, cost-benefit analyses, and coordination between multiple agencies. Additionally, with the 2024 election cycle behind and the current administration focused on affordability and equitable housing access, changes to mortgage rules could become a politically sensitive topic.
In the meantime, some banks are exploring internal policy shifts to expand lending within the bounds of current rules. These include offering more robust first-time homebuyer programs, partnering with nonprofit housing counselors, and using technology to better assess applicant risk. Such initiatives could provide a stopgap solution while the larger policy debate unfolds.
Ultimately, the push for simplified mortgage rules reflects the tension between maintaining financial safeguards and expanding homeownership in a more complex, modern economy. As the housing market continues to adapt, both regulators and lenders face the challenge of ensuring that rules evolve to serve today's borrowers—without compromising the hard-won lessons of the past.
