Key Takeaways:
A regulatory rewrite years in the making could deliver what the Federal Reserve under Kevin Warsh has been unwilling to provide: lower mortgage rates for millions of American homebuyers.
The Trump administration's revised Basel III Endgame proposal, which would reduce the amount of capital banks must hold against low-risk mortgages, is expected to be finalized by early 2027 after its comment period ended earlier this month. The Urban Institute projects the rule could push down 30-year fixed mortgage rates by as much as 0.2 percentage point across the board, and by up to 0.5 percentage point for borrowers who make a down payment of at least 40%.
"The changes should make it more attractive for banks to hold lower-risk mortgages on their balance sheets, and that competition should flow through to borrowers in the form of lower rates," researchers at the Washington-based think tank wrote in a paper analyzing the proposal.
The rule represents a sharp reversal from the approach taken under President Joe Biden, whose regulators proposed capital increases that drew heavy criticism from banks and lawmakers. Regulators issued a heavily revised version of the rule earlier this year, lowering risk weights for mortgages deemed less likely to default. For a borrower putting 20% down — often the minimum to avoid private mortgage insurance — rates could fall between 0.15 and 0.4 percentage point, the Urban Institute found.
Higher-risk borrowers who put less than 20% down could see their rates increase modestly, the researchers noted, reflecting the rule's tiered approach to risk weighting.
How the Rule Reaches Borrowers
Banks must hold capital against mortgages they keep on their balance sheets based on how risky regulators deem those loans to be. The revised proposal substantially reduces those so-called risk weights for low-risk mortgages, making it cheaper for banks to originate and hold such loans. While banks have traditionally not viewed mortgages as a major profit center — instead using them to deepen customer relationships — the lower capital charges could shift that calculus.
The rule's impact will depend on how banks respond once the final language is published. Regulators are expected to take until the end of 2026 or early 2027 to complete the rulemaking process.
The Basel III Endgame effort is the culmination of an international push to harmonize bank capital standards after the 2008 financial crisis. The current U.S. rewrite has been closely watched by the banking industry, which had warned that the Biden-era proposal would constrain lending and raise costs for consumers.
A Separate Track From the Fed
The potential mortgage relief arrives as the Federal Reserve under Chairman Warsh has shown little urgency to cut its benchmark rate. The central bank has left its key rate unchanged this year, and a growing number of policymakers have expressed concern about persistently high inflation, with some suggesting the Fed could raise rates by year-end.
President Donald Trump has been dismissive of those inflation worries and has pushed for dramatic rate reductions to lower borrowing costs for homes, cars and other large purchases. The Basel III rewrite offers an alternative path to cheaper mortgages that does not depend on the Fed's rate-setting committee.
Trump last week delayed signing a bipartisan affordable housing bill — the 21st Century Road to Housing Act — calling it "a yawn" and arguing that its importance paled next to voting legislation. Speaker of the House Mike Johnson said the House would send the bill to Trump's desk anyway, starting a 10-day clock for the president to sign or veto it.
The Supreme Court on Monday handed Trump a major victory on executive power, ruling 6-3 that presidents have free rein to fire the heads of independent agencies at will, overturning a 91-year-old precedent. The court made an exception for Federal Reserve Governor Lisa Cook, allowing her to keep her job 5-4 while she fights Trump's effort to fire her over unproven mortgage fraud allegations. Trump said he would seek to remove her again.
The Basel III Endgame proposal, if finalized as expected, would represent one of the most consequential regulatory changes for the housing market in years — a shift that could lower monthly payments for millions of borrowers without a single move from the Fed.
This article is for informational purposes only and does not constitute investment advice.
