At least 10 million Americans lost their homes during the 2008-09 global financial crisis. In the aftermath, Congress passed the 2010 Dodd-Frank Act, which was intended to promote financial stability, protect consumers from predatory financial practices and prevent taxpayer-funded bailouts.
Those regulations, though, came with a cost. Recently, President Donald Trump signed an executive order, “Promoting Access to Mortgage Credit,” that takes aim at lending regulations the administration says increase the cost of mortgage loans, limit credit access for qualified borrowers and weaken community bank participation in lending.
However, by reducing lending regulations and rolling back oversight, Trump’s executive order threatens to destabilize the financial system, according to Brittany Lewis, an assistant professor of finance at Olin Business School at Washington University in St. Louis.
Lewis is an expert in financial intermediation, household finance and real estate. Her research has uncovered the unintended consequences of financial regulation on bank and nonbank lending. At the request of U.S. Sen. Elizabeth Warren’s banking committee, Lewis provided written expert testimony on the potential consequences of Trump’s executive order.
“By effectively immunizing creditors from liability, the order promotes a return to the exploitative lending that precipitated the global financial crisis and signals a regulatory retreat precisely as lending risks are projected to rise,” Lewis writes.
“This rollback of oversight threatens to destabilize the financial system by shielding lenders from the consequences of increased exposure to high-risk assets.”
Below is a summary of Lewis’ memo.
Removing guardrails that protect borrowers
The executive order loosens ability-to-repay (ATR) and qualified mortgage (QM) rules for portfolio-qualified mortgages (portfolio-QM). Portfolio-QM are mortgages that do not fully meet requirements to be a qualified mortgage. This includes mortgages with balloon payments, high debt-to-income ratios and limited documentation. Removing guardrails on portfolio-QM mortgages makes them very fragile, Lewis said. It also foreshadows further loosening of requirements in non-QM.
Prior to the 2008-09 global financial crisis, lenders could underwrite adjustable-rate mortgages based solely on a borrower’s ability-to-repay initial payments, rather than payments after the loan payment reset to its market rate. In the short term, borrowers enjoyed artificially low introductory mortgage payments. Like these pre-crisis mortgages, Portfolio-QM or non-QM mortgage products also could offer artificially low mortgage payments that reset to much higher payments later in the loans’ terms. Loosening ability-to-repay guardrails sets borrowers up for loans with resets they can’t afford.
Lewis’ research shows that these alternative mortgages default at significantly higher rates because borrowers struggle once payments rise, especially in the event of macroeconomic downturns. Consistently, the number of non-QM mortgage originations increased 40% in the first quarter of 2026 and their default rates rose 20% since November 2025, foreshadowing further performance declines as borrower protections loosen.
“I also found evidence that minority-dominant ZIP codes are the most at risk of receiving complex alternative mortgage products, causing higher default, foreclosure and bankruptcy rates, as well as the largest ensuing increase in unemployment in these areas,” Lewis said.
According to Lewis, weakening ability-to-repay standards and expanding such products risks recreating pre–global financial crisis conditions, concentrating risks for lenders and increasing systemic risk for the broader financial system.
Expanding legal protections, decreasing supervision for lenders
The executive order also shifts mortgage regulation toward weaker oversight and stronger creditor protections in several ways that, taken together, resemble pre–financial crisis conditions and raise systemic risk, Lewis explained.
By revising supervisory treatment to a “correction‑first” supervisory model and limiting enforcement actions and penalties unless there is “clear, willful misconduct,” the order lowers regulatory pressure on lenders and effectively shifts risk and burden of proof onto borrowers, especially the most vulnerable.
The irony is that the high-risk mortgage products encouraged in this order require more rigorous supervision, not less, to prevent systemic failure, Lewis said. The accelerated valuation, lower capital charges on warehouse lines of credit — which her work shows are vulnerable to bank runs — and relaxed underwriting scrutiny of high-risk mortgage products can lead to mispricing, higher foreclosure rates and concentrated risk on and off bank balance sheets.
By granting preemptive safe harbors and signaling reduced regulatory oversight, this executive order replicates an environment where high risk mortgages enjoy heightened creditor protections established under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005, Lewis said. Those legacy protections incentivized the excessive leverage and high-risk alternative mortgage products that destabilized the financial system in 2008-09.
BAPCPA is still in place, limiting mortgage holder insurance in bankruptcy and encouraging excessive leverage by financial intermediaries.
“Strengthening creditor rights in this manner creates a moral hazard because it effectively shields lenders from liability in anticipation of a resurgence in high-risk, nontraditional lending,” Lewis said.