Banking and Finance Law Daily Wrap Up, MORTGAGES—WashU expert warns looser mortgage rules could raise systemic risk, (Apr 29, 2026)

By Shashi Kant, BALLB, LL.M.

WashU summary of written testimony says easing ability-to-repay standards and reducing lender oversight could recreate pre-crisis conditions.

A Washington University in St. Louis finance professor warned that loosening mortgage lending rules and reducing supervisory oversight could destabilize the financial system by encouraging riskier home loans and shielding lenders from the consequences of increased exposure to high-risk assets. In the article summarizing written testimony prepared at the request of Senate Banking Committee minority members, WashU said Brittany Lewis, an assistant professor at Olin Business School, argued that President Donald Trump’s executive order on mortgage credit threatens to recreate conditions that contributed to the 2008-09 financial crisis.

According to the WashU summary, the executive order, titled “Promoting Access to Mortgage Credit,” targets lending regulations that the administration says raise mortgage costs, restrict access to credit for qualified borrowers, and weaken community bank participation in mortgage lending. Lewis, whose research focuses on financial intermediation, household finance, and real estate, said the order’s deregulatory approach could undermine financial stability rather than expand sustainable credit access.

Lewis says order weakens ability-to-repay protections. The WashU article says Lewis’ testimony focused first on the order’s treatment of ability-to-repay and qualified mortgage standards for portfolio-qualified mortgages, or portfolio-QM loans. According to the summary, Lewis said portfolio-QM loans do not fully satisfy qualified-mortgage requirements and can include features such as balloon payments, high debt-to-income ratios, and limited documentation. She warned that loosening guardrails for such loans could make the products more fragile and foreshadow broader easing of standards in the non-QM market. The article draws a parallel to pre-crisis adjustable-rate mortgages that were underwritten based on borrowers’ ability to make initial payments rather than payments after the rate reset. Lewis said portfolio-QM and non-QM products could similarly offer artificially low early payments that later reset to much higher amounts, leaving borrowers unable to afford them. WashU said Lewis’ research shows these alternative mortgages default at significantly higher rates when payments rise, especially during macroeconomic downturns.

The summary further states that non-QM mortgage originations increased 40 percent in the first quarter of 2026 and that default rates on those loans rose 20 percent since November 2025. Lewis said those trends foreshadow further deterioration if borrower protections are loosened. She also said her research found that minority-dominant ZIP codes are especially exposed to complex alternative mortgage products, leading to higher default, foreclosure, and bankruptcy rates and to larger subsequent increases in unemployment.

Testimony also criticizes reduced supervision and stronger creditor protections. WashU said Lewis’ testimony argued that the executive order not only eases product-level standards but also shifts mortgage regulation toward weaker oversight and stronger creditor protections. According to the article, Lewis said the order adopts a more “correction-first” supervisory approach and limits enforcement actions and penalties unless there is “clear, willful misconduct,” thereby reducing regulatory pressure on lenders and shifting risk and the burden of proof onto borrowers. Lewis said that combination resembles pre-financial-crisis conditions and raises systemic risk, particularly because the higher-risk products encouraged by the order require more supervision, not less. WashU said she warned that accelerated valuation, lower capital charges on warehouse lines of credit, and more relaxed underwriting scrutiny of high-risk mortgage products could lead to mispricing, higher foreclosure rates, and concentrated risk both on and off bank balance sheets.

Lewis links current policy shift to earlier legal protections for mortgage creditors. The article also says Lewis connected the executive order to creditor protections enacted under the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. According to WashU, she argued that by granting preemptive safe harbors and signaling reduced regulatory oversight, the order recreates an environment in which high-risk mortgage products enjoy heightened creditor protections. Lewis said those legacy protections encouraged excessive leverage and high-risk alternative mortgage products that helped destabilize the financial system in 2008-09, and she warned that strengthening creditor rights again would create moral hazard by effectively shielding lenders from liability as riskier lending expands.

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