The federal government's consumer watchdog plans to unveil new home-lending rules, potentially reshaping the U.S. mortgage market by ushering in more standardization and preventing a return of the exotic loans that powered the housing bubble.

This week, the Consumer Financial Protection Bureau will define standards that all mortgage lenders are likely to follow when originating home loans.

The new rules—the most significant policy implemented by the CFPB since its inception 18 months ago—will be contentious because they will determine the types of loans that banks will offer, as well as to whom, and on what terms.