Big banks left mortgages. Why some community banks stayed

• Key takeaway: Executives at two community banks said the mortgage business provides an opportunity to introduce customers to other bank products and services.
• Expert quote: "We've always felt like if we get a customer's mortgage, it increases our opportunity and probability to be that customer's bank." —Jim Edwards, United Bank CEO
• What's at stake: Changes proposed by prudential regulators could lower the cost of originating and holding mortgages for banks, but regulatory requirements under laws such as the Truth in Lending Act, the Real Estate Settlement Procedures Act and the Home Mortgage Disclosure Act, remain a challenge. 

While many large banks have retreated from mortgage lending, some community banks have continued to offer home loans despite the cyclical nature of the business. 
For two executives at community banks ranked among the top-performing banks in 2025, the decision to originate and service mortgages has less to do with profits and more to do with building strong customer relationships that could lead to other business down the road.

Jim Edwards, CEO of United Bank, said buying a home is one of the biggest financial decisions a customer will make, making mortgages a core product for the bank.

"We've always felt like if we get a customer's mortgage, it increases our opportunity and probability to be that customer's bank," Edwards said. "Maybe we will then have their checking accounts, or opportunities for commercial loans if they run a small business or for our wealth management business to help them save for retirement."

In recent months, prudential regulators have proposed changes to regulations intended to encourage more banks to enter the mortgage market, including a proposal to recalibrate Basel risk weights. But banks already active in the business say regulatory changes alone may not be enough to offset the costs associated with mortgage lending.

The Zebulon, Georgia-based United Bank has been in the mortgage business for more than 40 years. The bank originates and services mortgages in-house, creating opportunities to strengthen customer relationships while also exposing the bank to the unpredictability of the mortgage business.

"It's been profitable," Edwards said. "We haven't lost money on it, but it is the most cyclical part of our company's revenue stream, so we recognize that and we do our best to budget and plan for that."

Edwards said in-house servicing gives the $2.3 billion-asset bank the ability to address issues customers may have with their mortgages.

"We have never wanted to be the bank that points a customer to a 1-800 number for someone else to figure out issues with a mortgage," Edwards said. "We see this as our issue and we just feel like it provides better customer service if we can maintain that relationship."

Michelle Sawicki, senior vice president of Five Points Bank's mortgage division, said the bank charges lower closing costs than some other mortgage lenders to incentivize customers to take out loans.

"We'd rather customers put more money into the equity of their home, the down payment, than charge inflated closing costs," Sawicki said. "And maybe if they have a great experience they'll want to open a checking account, or they'll need a loan for remodeling. We want our bank to be their bank."

Five Points Bank, based in Grand Island, Nebraska, has offered mortgage products to customers since 2004. The $2.1 billion-asset bank also keeps most of its mortgage servicing in-house, with Sawicki estimating that about 80% of the loans originated by the bank remain in-house.

Sawicki said Five Points Bank differentiates itself through the "personal touch" it offers customers. "This new generation coming in truly wants to talk, they want to know more about mortgages," Sawicki said. "They want to learn what they are signing up for. So we're educating them and via word of mouth from us and in the community business just keeps building that way."

Both United Bank and Five Points Bank operate against a challenging backdrop of fluctuating interest rates and strict regulatory requirements. Over the past six years, mortgage rates have fallen below 3% before rising above 6%, creating a volatile environment for banks operating in the mortgage market.

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U.S. financial regulators have proposed changes to the bank capital framework in an effort to encourage more banks to enter or remain in the mortgage market. The proposals include lower risk weights for certain safer mortgages, as well as changes to the capital treatment of mortgage servicing assets and other requirements tied to mortgage activity.

The regulatory push comes after a long decline in bank participation in the mortgage market following the 2008 financial crisis. In 2023, banks originated 35% of mortgages and serviced 45%, down from about 60% of originations and 95% of servicing in 2008.

Supporters of greater bank participation say banks generally hold more capital and operate under stricter regulatory oversight, which could bolster stability during a downturn. Greater bank participation also could increase competition, potentially leading to lower interest rates and more competitive pricing for borrowers.

However, for banks already in the mortgage business, changes to capital requirements may not address the biggest barriers to participation. 

Edwards said additional regulatory changes would need to happen alongside changes to capital requirements to encourage banks to enter or remain in the mortgage market.

"I applaud any regulator for recognizing that this is an issue for the financial industry and banks in general, but with that said, our biggest challenges have not been specifically with risk weighting," Edwards said. "The bigger challenge for us has been the extreme amount of regulation that came down on banks doing mortgages after the Great Recession."

Mortgage industry groups and some banks have cited regulatory requirements under laws including the Truth in Lending Act, the Real Estate Settlement Procedures Act and the Home Mortgage Disclosure Act as challenges to greater bank participation in the market. 

United Bank, at $2.3 billion in assets, is not the smallest community bank, Edwards said, giving it a balance sheet large enough to support the additional overhead required to offer mortgages. But he said many smaller banks have decided the regulatory burden makes the business too complicated to maintain.

"I think that has been a challenge," Edwards said. "The amount of paperwork that we have to have a 23-year-old couple sign to get a mortgage is three or four times as much as what I have to get to have a $5 million commercial loan signed."