Mortgage Risk Management in 2025: What Recent Changes Mean for Investors

Mortgage Risk Management in 2025: What Investors Should Know

As 2025 draws to a close, mortgage risk management is more important than ever — and it’s evolving rapidly. With regulatory changes, shifting borrower behavior, and market uncertainty, investors need to understand how these trends are shaping the industry. From new federal lending guidance to the return of refinancing activity, the mortgage landscape is seeing meaningful shifts that will have lasting implications for both lenders and homebuyers. Here’s what investors should know as the year winds down.

Regulatory Shifts and Their Impact on Lending

Regulators are taking a fresh look at risk management in commercial and leveraged lending. On December 5, 2025, the (OCC) and the (FDIC)

rescinded two long-standing rules on leveraged lending: the 2013 Interagency Guidance and the 2014 FAQs. These rules had been criticized as overly restrictive and broad, limiting banks' ability to apply tailored risk management practices. In their place, the agencies introduced eight general principles for prudent risk management, including clearly defined risk appetite, consistent underwriting standards, and lifecycle monitoring.

This move is intended to give banks more flexibility in commercial lending, especially in a market where private credit providers have been stepping in to fill the gap left by tighter bank standards. The Federal Reserve did not join the rescission, so investors should note that regulatory divergence remains — and that may influence lending conditions in different regions of the country.

Borrower Behavior in a Refinance-Friendly Environment

With mortgage rates trending lower in late 2025, homeowners are taking advantage of better refinancing opportunities. , . Notably, non-bank servicers outpaced banks, . This shift reflects the growing role of non-banks in the mortgage market and could signal a long-term structural change.

, . . Meanwhile, . These trends highlight how falling interest rates are reshaping borrower behavior and liquidity in the housing market.

Implications for Investors and the Mortgage Market

For investors, these developments point to a dynamic mortgage market that offers both opportunities and risks. The regulatory shift toward more flexible risk management may encourage banks to expand their lending portfolios — a positive sign for institutions with strong underwriting capabilities. However, it also means that investors will need to pay closer attention to how banks are managing risk, especially in commercial lending, where the lines between high-risk and moderate-risk borrowers can blur.

Borrower behavior is equally important. As more homeowners refinance and access equity, there’s potential for a modest rebound in home sales, especially among existing homeowners looking to reduce their costs. But this is unlikely to translate into a housing boom. Mortgage platforms like Zillow, Redfin, and Realtor.com expect rates to stay above 6% in 2026, with only slight improvements in affordability. .

Looking Ahead: What to Watch in 2026

As we head into 2026, investors should keep an eye on a few key indicators. First, how banks adapt to the new risk management principles will be telling. Will they expand their lending cautiously or aggressively? The Federal Reserve's potential future actions could also shape the playing field, especially if it adopts a similar approach to risk management or introduces new constraints.

Second, the ongoing shift in borrower behavior — particularly the rise in non-bank servicers and the use of home equity products — will be worth tracking. This trend could reshape the mortgage servicing market and affect everything from loan origination to default rates.

Finally, investors should stay mindful of the broader economic context. The 2025 Annual Report of the highlights the importance of economic growth in maintaining financial stability. Strong growth can help reduce debt burdens and improve loan performance, which bodes well for the housing market and related financial institutions.

At the end of the day, mortgage risk management is becoming a more nuanced and flexible practice, but it remains a critical factor in both lender profitability and borrower outcomes. Investors who stay informed about regulatory changes, borrower behavior, and macroeconomic trends will be better positioned to navigate this evolving landscape.