Frost Bank's mortgage unit generated $595 million in outstanding loans in 2025, surpassing what its leaders had initially expected when the San Antonio-based bank re-entered home lending two years earlier.
"If you look at why we exited, we just weren't able to deliver that product in a relationship way that we did everything else," said Beverly Hankinson, senior vice president and mortgage loan advisors manager for the lending unit of Cullen/Frost Bankers.
Rather than selling a full set of loan products, the San Antonio-based bank took a measured approach in ramping up conventional and jumbo lending capacity within its Texas home base, positioning itself to take advantage of the state's economic and population growth.
"We're not trying to be everything to all people. We want to make sure we have a product that helps our customers," Hankinson said.
Two years later, the total amount of loans outstanding at the bank soared past its leadership's initial expectations.
The bank's re-entry three years ago came during an extended period when the share of mortgage lending at depository institutions contracted significantly following the Great Recession, as they ceded volume to nonbanks. After 2013, annual production volume coming from banks and credit unions consistently shrank for several years from an almost two-thirds share of 65%. Banking volume sat at less than half that number, or 32.5%, by the end of 2024, according to the Mortgage Bankers Association.
As regulations toughened and the associated costs made profits difficult to achieve, mortgage exits, rather than growth, became a frequent banking theme in the following decade and a half and contributed to the dwindling share.
Today, though, some banks and credit unions today see prime opportunities in home lending, whether through organic growth or mergers and acquisitions, and are doing their part to swing the pendulum back. While nobody predicts any return to pre-2013 numbers, these institutions see mortgage lending fueling overall growth and serving as a business where they can successfully make a mark.
Their leaders today say their business models offer them both incentive and a means to help a mortgage unit thrive.
"It's not just the next loan or lending product. We believe — and we've shown through some of our results — it's really the front door to a lifetime banking relationship," said James Sias, head of mortgage lending and indirect dealer services at Fifth Third Bank.
"You're not looking at profitability in the mortgage business in a silo," he said.
Regulators support growth. How will banks respond?
Notoriously cyclical and subject to the whims of regulators, mortgage lending presents an obstacle course of rules and occasional roadblocks for entry and expansion, especially for depository banks. Yet compared to three years ago, expectations of a more favorable business environment and loosening regulations might encourage them to step up.
In March, President Trump issued an executive order calling for changes to regulations that would allow more small banks to offer mortgage lending. His order came just days after Federal Reserve Gov. Michelle Bowman, a former community banking leader herself, proposed changesto capital rules requirements also aimed at promoting mortgage participation in the depository space.
Among suggested policy changes are reduced risk thresholds for banks with more than $100 billion in assets and expansion of the capital ratios for the largest institutions. Bowman also proposed adjusting credit-risk weighting factors assigned to off-balance sheet exposures, such as mortgage-servicing rights, which may increase banks' appetite to offer home loans, and updating loan-to-value assessments for real estate transactions.
For banks and credit unions considering mortgage expansion, either as a new entrant or through renewed commitment, success still demands a great deal of effort. A thriving business, though, can come to those with a strategic plan and the patience to build it out, according to Paul Schaus, founder and managing partner of CCG Catalyst, a consulting firm serving financial services.
"I preach to them, 'If it's a foundational business, let's build it as a foundational business,'" he said about consultations he has with banks to discuss mortgage growth.
"The banks that will win are those doing it deliberately, not reactively, and building origination infrastructure rather than chasing volume," he continued.
It's not just the changes to Basel III, but also the "other behind the scenes, more basic regulatory changes that the landscape of a bank dealing with the mortgage regulatory [side] is getting better and better every quarter," said Bill Corbet, managing director of Blackfin Group's Strategy Consulting Practice. Some of those are not directly tied to mortgage, such as the change in the audited financial threshold requirements for community banks, still make it easier for them to do residential real estate lending.
"The other big reason that banks, I think, are starting to pay more attention to mortgage is their customer base," said Corbet. "Customers have housing needs, and for years, the bank could have a deposit customer and not really care where they went for their mortgage."
Corbet added he believes this attitude is counter-productive, especially because it affects customer retention. This is something they are competing with non-bank mortgage servicers on.
"Even if you don't love the mortgage business, if you're serving your customer, you can protect your customer," he continued.
But what might need to change is the attitude bankers have about mortgage lending. In many organizations, they treat mortgages as a "bolt-on," and "not as part of the car," Corbet said. This is what contributes to a lot of the friction when it comes to bank mortgage operations.
Compensation is one such area of contention. It is possible for a top originator, who is normally paid on commission, to bring home more than the bank president depending on the size of the organization. That might be a tough pill for some executives to swallow, Corbet said.
What banks see in mortgages
Seeing mortgage as a pillar in the value of consumer banks is central to why they see today as the right time to invest in it, despite the volatility and tribulations involved.
A variety of factors, including advances in technology, set the groundwork for Frost to return, and top among them was the opportunity to serve customers in a way that elevates the bank in consumers' eyes as a comprehensive financial resource.
"We're talking with folks about their deposit, their investments, their insurance, and this is obviously a big part of someone's story in their financial picture," Hankinson said.
"It's really important for us to make sure our clients know that we're offering this, and we're doing it the way they see us do everything else in their portfolio."
Regardless of their companies' size, volume or framework, mortgage leaders frequently stress 'relationships' in discussing the kind of value they bring to customers. With customer access and recapture the basis for some of the strategic decisions occurring throughout the mortgage industry over the past two years, a bank, by design, sits in the pole position when it comes time to serve home lending clients' other needs, Sias said.
The impact can span generations. "I understand the short-term logic if you look at it in isolation. Is mortgage profitable?" he said. "My view has always been that mortgage isn't a rate-cycle bet."
Since 2022, Fifth Third has made concerted efforts to extend its banking network with mortgage featuring prominently in its recent growth in regions seeing a population boom. Now one of the 15 leading lenders among bank and credit unions and in the top 50 overall, Fifth Third produced almost $7.9 billion in originations in 2025, according to IEmergent analysis of Home Mortgage Disclosure Act data.
By comparison, the top overall originator, United Wholesale Mortgage, produced $164.3 billion in loans last year, while the largest bank lender, JPMorgan Chase originated $48.1 billion.
Customers with mortgages are more likely to hold other accounts at the same bank and maintain higher balances in them than those without, according to the executive of Cincinnati-based Fifth Third, which now ranks as the ninth largest depository based on asset size following an acquisition of Comerica Inc. in early 2026.
"That's a retention advantage that compounds over years and then decades," he remarked.
Climate First Bank is headquartered in St. Petersburg, Florida, but it has depositors in all 50 states and has produced solar loans in 44 of them. It has a national fintech backbone that supports a lot of what it does.
The bank has three physical branches, with the others in Winter Park and Mount Dora. But it is now embarking on a nationwide expansion of its mortgage business.
Felipe Ferreira, executive vice president and director of residential lending, has been with the bank since 2021, but has been in mortgage lending starting in 2002.
"This is basically the launch of a different vertical, but I do want to compete head to head with the nationwide quote, unquote, discount mortgage providers," Ferreira said. Besides traditional loan officers out in the street hustling for business, Climate First is also looking to gain market share in areas where it can naturally expand on what it offers with its solar program.
"The way I look at it is 100% of our solar clients are homeowners, " he said. "Most of them have a mortgage, so they know our bank already." It's a continuation of, and a natural fit with, what Climate First already offers.
But the plans are not just to rely on this client base. "We are going to just try to expand in different markets as a whole, with the marketing blitz to do purchase and I hope to be able to tap into a lot of refi, is if we continue to see an improving rate environment," Ferreira said. Climate First is a full service bank that offers a variety of products. Mortgages are another cross-selling opportunity in either direction.
Consumers want to work with a community bank, but they want the services that the big banks offer or the non-bank mortgage lenders provide and that is the niche Ferreira is hoping Climate First can fill. Still, his unit needs to offer customers "a competitive rate and a competitive product, which I think we do."
How banking structure can support mortgage lending
Whatever approach to expansion banks take, their leaders underscore that mortgage profitability comes from across the organization.
Solid balance sheets and shared services provide flexibility for mortgage units to both innovate and generate volume, they say.
"We get about 50% of our referrals from our bankers, and we want to make sure that we're treating those clients as they do, and they entrust us to take care of them," Hankinson said. "It's a very strong relationship with all of our internal partners, and we get to leverage them as well."
"Throughout the process, we've integrated with our other systems, so our bankers know what's happening with their clients," she added.
Internal resources mean mortgage departments within banks are free from the worries of relying on commercial lines of credit, including any accrued interest they would be expected to pay back.
"It gives us some tremendous advantages in ways that I hadn't actually even thought about before I joined this company," said John Brumond, senior vice president at Quontic Bank, whose prior experience had been exclusively at nonbank lenders.
"We aren't relying on warehouse lines and having to flip them every couple of weeks. We use borrower assets, we sell loans and then we replenish the assets."
Bank infrastructure also provides institutions the opportunity to service many, if not all, their originated mortgages. While providing a regular stream of revenue, it turns into a retention advantage for the banks, giving them the chance to promote themselves to customers as financial partners, rather than a vehicle for a one-and-done transaction.
"We want to retain servicing, and we want to be able to help that member when they have questions on their mortgage and not farm it out," said Josh Summerfield, vice president of mortgage at Consumers Credit Union in Kalamazoo, Michigan.
"Our ability to sell loans and retain servicing helps us from the liquidity standpoint, so we're not putting everything on the balance sheet. That is an important piece of growth for us," he added.
Similarly capitalizing on opportunities available by tapping into a wide set of resources at hand is First Federal Bank, which has grown significantly through acquisitions of mortgage-specific assets in recent years.
The Lake City, Florida-based bank expanded in 2023 with a mortgage-focused merger involving BNC National Bank. It followed it up in early 2026 with another acquisition of Louisiana-based Fidelity Bank's home lending division. The strategic moves meant it could quickly scale retail and direct-to-consumer channels to complement its existing assets, including a large mortgage-servicing rights portfolio.
"We have some benefits just because of the structure of the bank, the soundness," which permits it to retain a book of MSRs, First Federal president of residential lending Doug Brendel said.
The liquidity and strength of the balance sheet can serve as an attractive marketing lure for recruitment, as institutions like First Federal plan to pursue future growth, he added.
"It certainly will make loan officers feel better when they're looking at making a transition," Brendel said. "That's just one less thing they have to put on their list of things to worry about."
Potential ways banks could unlock mortgage value
For banks with the means to keep mortgages on their books, doing so offers flexibility they can use to set themselves apart from competitors through new creative financing products, Schaus said.
By and large, depository institutions in the mortgage business already hold on to a percentage of their loans, he noted.
"There's bits and pieces that you can create to give you a competitive advantage," he said. "If you want to portfolio them, then create a differentiation in the market. Because if you're portfolio-ing it, you can, you could have this loan do anything you want."
Yet while new regulatory proposals, in theory, could provide incentive to spur bank growth, putting some of them into practice won't be as simple as flipping a switch. To fully bear fruit, Trump's executive order needs government resources currently scarce after the gutting of the Consumer Financial Protection Bureau in the first year of his term.
Even with advancements in technology, financial institutions would also need to either rebuild or ramp up origination infrastructure in a sustainable manner rather than setting themselves up to just "make a fast buck" when business tailwinds appear, Schauss advised.
Thanks to balance sheet stability, existing customer relationships and local knowledge that nonbanks can't replicate in the same way, community and regional banks are uniquely positioned to profit from a mortgage unit's launch, he added.
At the same time, banking professionals also note that the regulatory climate allowing for banking growth through new and potentially risky initiatives, from mortgage to digital currencies, could quickly chill, Schaus said. A single election cycle may quickly put a halt to developments and penalize those who chose to wait.
"If I'm a banker, I'd rather get something going. If I need approval from a regulator, this is the time to do it," Schaus said.
"The industry is in a period of flux right now, and there's a lot of unknowns. It's kind of scary, but also exciting," he added.
