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The following article by Patrick Sullivan, Executive Vice President, Mortgage Partnership Finance® Program, originally appeared in Independent Banker on July 1, 2026.
Federal policy actions may create new opportunities for community banks to expand their role in mortgage lending through tailored regulation, stronger liquidity access, and partnerships that support housing affordability.
Over the past two decades, the structure of the mortgage market has shifted in response to legislative and regulatory changes stemming from the 2008 financial crisis. One unintended result is that depository lenders today play a significantly smaller role in mortgage originations than they have historically. Recent federal policy actions, including the executive orders “Promoting Access to Mortgage Credit” and “Removing Regulatory Barriers to Affordable Home Construction,” signal renewed attention on this trend and may create opportunities for community banks to re-engage more actively in mortgage lending.
The stated intent behind the executive orders is to reduce regulatory complexity, improve access to credit for qualified borrowers, and support housing affordability. As with any policy directive, the ultimate impact will depend on how federal agencies translate these orders into specific regulatory and supervisory changes. Even so, they present an opportunity to reassess how the mortgage market can better support community banks and the households they serve.
Federal Home Loan Banks (FHLBanks), as member-owned cooperatives, provide reliable liquidity and secondary market access to thousands of local financial institutions across the country. In coordination with the Federal Housing Finance Agency (FHFA) and other stakeholders, the FHLBanks are actively engaged in discussions on how these policy directions might be implemented in a way that promotes both market efficiency and long-term stability. Our aim is to help community banks strengthen their role as trusted mortgage providers for American homebuyers.
Tailored Regulatory Frameworks
A central theme of recent discussions is the need to better align regulatory requirements with the size, complexity, and business models of financial institutions. Historically, one-size-fits-all rules have placed a disproportionate burden on community banks, which often operate with fewer compliance resources. The rules may not fully recognize the critical role community banks play in using local deposits to support the unique housing needs within the communities they serve.
A more tailored approach could help community banks better serve their customers and operate more efficiently while continuing to meet high standards for safety and soundness. With strong local relationships and market knowledge, these institutions understand the credit needs of their individual and business customers better than their regional or national competitors and are well positioned to serve a full range of customers. Reducing unnecessary administrative burden may allow them to focus more fully on delivering credit in a timely and responsible manner.
Risk-Sensitive Capital and Liquidity Considerations
Capital and liquidity frameworks also remain an important area of focus. Community banks often face requirements that can limit flexibility in managing balance sheets and supporting traditional lending activities.
As part of broader policy discussions, FHLBanks have highlighted the importance of ensuring that mortgage capital treatment appropriately reflects underlying risk, particularly for mortgage-related assets such as mortgage servicing rights and residential mortgage loans held in portfolio. In parallel, continued access to reliable liquidity is essential. Programs that connect community lenders to the secondary market, such as the Mortgage Partnership Finance® (MPF®) Program, can help institutions manage risk, access funding, and remain competitive. The MPF Program and its stakeholders across the FHLBank System support the proposed rulemaking focused on strengthening the role of community banks in residential mortgage origination and servicing, including a focus on capital treatment for credit enhancement obligations tied to loans delivered under MPF credit risk-sharing products.
Partnerships and Shared Solutions
Addressing the nation’s housing affordability and supply challenges will require coordination across the housing finance ecosystem. Community banks, policymakers, housing organizations, and industry stakeholders each play a role in advancing practical solutions.
Collaborative models are already demonstrating how this can work in practice. Initiatives that bring together lenders, nonprofit partners, and builders can help expand access to affordable homeownership while supporting local development. For example, FHLBank Chicago’s MPF® Habitat for Humanity® Program, which provides discounted mortgage rate loans to Habitat homebuyers, illustrates how partnerships can align lenders, builders, and borrowers around a shared goal: expanding affordable homeownership for low-income families.
Looking Ahead
While the full implications of recent executive orders and proposed rulemaking will unfold over time, they underscore a broader shift toward re-engaging community banks in mortgage finance. In the months ahead, institutions will likely focus on how evolving guidance around capital, supervision, and liquidity may shape their participation.
With thoughtful implementation and continued collaboration, these developments could help strengthen competition, expand access to credit, and reinforce the important role community banks play in supporting homeownership and local economies.