The Federal Reserve (Fed) is gearing up to relax its capital requirements for American banks in a bid to stimulate mortgage lending for home buyers. This initiative was announced by the Fed's Vice Chair for Supervision, Michelle Bowman, in a speech on Monday, following claims from senior officials during Donald Trump's government that current restrictions are pushing mortgage credit outside the banking sector. The Fed's planned changes aim to create incentives for banks to engage more in mortgage origination and servicing.

Bowman outlined that the proposed reforms will address concerns about the shift of mortgage activity to non-bank institutions over the past 15 years, a trend that has raised alarms regarding the stability and oversight of mortgage lending. By altering these regulations, the Fed hopes to reinvigorate the banking sector's role in housing finance and ensure that credit remains accessible through traditional banking channels, rather than further migrating to less regulated entities.

This potential regulatory shift signals a broader strategy to bolster the housing market and could significantly affect how mortgages are originated in the United States. If successful, this initiative may enhance consumer access to credit and promote stability within the housing finance system, addressing concerns voiced by both lawmakers and economic analysts about the long-term implications of a weakened banking presence in the mortgage sector.