As the Fed moves to lure banks back into mortgages, what's next for the broker channel?
The Federal Reserve wants to see banks’ mortgage market share increase again, announcing plans this week to loosen lending rules and capital requirements in an effort to coax major lenders back into the market.
In a speech on Monday, Fed vice chair for supervision Michelle Bowman cited a “significant migration of mortgage origination and servicing out of the banking sector” as a cause for concern, and argued the current framework made it too difficult for banks to engage in mortgage lending.
Those comments sparked questions over what a more muscular banking presence in the mortgage market could mean for independent brokers and loan originators now faced with greater competition.
And while a prominent Arizona-based lending executive doesn’t see that prospect as huge cause for concern in the near term, he believes it could ultimately up the ante and potentially put pressure on less skilled or focus brokers.
“Long-term, it just raises the skill level required,” Jay Lessard (pictured top), president and loan officer at Sonoran Lending, told Mortgage Professional America.
“Loan officers who rely on quoting rates may struggle, but those focused on advice and service will be fine. It could be advantageous for these banks to find a way to partner with independent mortgage brokers.”
Bowman said that the Fed would be proposing regulatory changes “soon” to incentivize bank participation in mortgage origination and servicing, although she gave no timeline for the move.
Lessard, though, noted that banks wouldn’t necessarily pit themselves in direct competition with brokers straight away – and that the move could prove a temporary boost to brokers’ business.
“When banks come back into the mortgage space, they usually fund the secondary market before rebuilding retail sales forces,” he said, “so brokers often benefit from better pricing and stability first.”
Mortgage migration away from banks: Really such a bad thing?
In her remarks, delivered at The American Bankers Association 2026 Conference for Community Bankers in Orlando, Bowman suggested banks bring a range of important benefits to the mortgage experience for consumers – and said customers turning to those companies for other services was a good thing.
“Customers with strong bank connections naturally turn to that bank for other financial needs, from checking accounts to investment services,” she said. “This can create a virtuous circle – good customer service in the mortgage business can lead to a stronger relationship with customers and result in improved bank financial resiliency.”
Fee income from mortgage servicing can diversify banks’ revenue streams, she added, while she also touted mortgage-based customer relationships as potentially more valuable for banks than nonbanks because of their ability to cross-sell products and services.
Lessard, though, said the slow pivot of mortgage lending away from banks since the 2007-08 Great Financial Crisis hasn’t necessarily been negative for the market.
“The migration to independent mortgage companies has actually increased competition and consumer choice, especially through the broker channel,” he argued.
“Borrowers have benefited from faster processes and more product flexibility. The concern regulators have is less about consumer experience and more about system stability during downturns.”
Room for both banks and other lenders, exec argues
It remains to be seen whether the Fed proposals would shake banks away from their conservatism in the current market. Lessard said he hasn’t noticed a meaningful increase in bank participation in recent years, aside from a focus on jumbo-sized loans.
But he said the market comfortably has room for both bank and nonbank channels, and argued against drumming up division between the two.
“At the end of the day, a healthy mortgage market benefits from diversity,” he said. “Banks, independent mortgage companies, and brokers each play a role.
“The goal shouldn’t be shifting dominance back and forth, but creating a system where credit remains available in all economic cycles while preserving competition for consumers.”
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