The low-interest rate environment had a lot more to do with this narrowing, along with sluggish loan demand. Historically low interest rates have significantly reduced the yields banks earn on their assets, especially mortgages.
Banks built up their holdings of mortgages as market conditions generated such remarkable volumes of these loans, and as weak demand for commercial loans left a void in bank balance sheets and income. Historically low rates on new mortgage loans, together with rapid prepayment of higher-rate mortgages, have sharply reduced yields on bank mortgage portfolios.