New Report: Mortgage Delinquencies Are Now Exploding in 2025

Mortgage delinquencies in the United States are climbing in 2025, signaling growing financial strain for some homeowners amid a challenging economic environment.

According to the Mortgage Bankers Association (MBA), the delinquency rate for mortgage loans on one-to-four-unit residential properties reached a seasonally adjusted 4.04% in the first quarter of 2025, up 6 basis points from the previous quarter and 10 basis points higher than the same period in 2024.

This uptick, while still below the historical average of 5.25% from 1979 to 2023, underscores emerging risks in the housing market that investors must navigate carefully.

The MBA’s National Delinquency Survey reveals a mixed picture across loan types.

Conventional loan delinquencies rose slightly to 2.70%, an 8-basis-point increase from the prior quarter, while Federal Housing Administration (FHA) and Veterans Affairs (VA) loans saw declines, with FHA delinquencies dropping 41 basis points to 10.62% and VA delinquencies falling 7 basis points to 4.63%.

However, year-over-year data shows broader increases, with FHA loans up 23 basis points and conventional loans up 8 basis points, while VA loans slightly decreased by 3 basis points.

The foreclosure inventory rate also edged higher, reaching 0.49% in Q1 2025, a 4-basis-point increase from Q4 2024.

Intercontinental Exchange’s (ICE) July 2025 Mortgage Monitor Report highlights that FHA loans, which often serve borrowers with lower credit scores and smaller down payments, are 250 basis points above 2019 delinquency levels, with 110,000 more delinquent mortgages than in May 2024 and 15,000 additional loans in active foreclosure.

VA loans also show rising stress, while government-sponsored enterprise (GSE) and portfolio loans remain relatively stable.

Economic Drivers of Delinquency

Several economic factors are contributing to the rise in delinquencies. Since 2021, mortgage interest rates have more than doubled, with the average 30-year fixed rate nearing 6.9% in early 2025, significantly increasing monthly payments for new and variable-rate borrowers.

For a $300,000 mortgage, the difference between a 3.1% rate and a 6.9% rate adds hundreds of dollars to monthly costs. Inflation continues to erode real wages, while non-mortgage housing costs, such as property taxes and insurance, are rising, particularly in states like Florida, where delinquency rates jumped 0.7 percentage points year-over-year.

The resumption of federal student loan collections in May 2025, after a five-year pause, has added pressure.

ICE reports that 20% of mortgage holders carry student debt, with serious student loan delinquencies reaching 31%.

This overlap is a key risk factor, as high debt-to-income ratios (averaging 40% for new borrowers) strain household budgets.

Other challenges include lower personal savings rates, rising consumer debt, and regional economic disruptions, such as job losses in certain sectors and natural disasters in states like Florida, South Carolina, and North Carolina.

Delinquency rates vary significantly by region and loan type.

The MBA notes that states like Florida (+99 basis points), South Carolina (+59 basis points), and North Carolina (+40 basis points) saw the largest quarterly delinquency increases in Q4 2024, often tied to natural disasters and economic headwinds.

FHA and VA loans, which cater to higher-risk borrowers, are showing faster delinquency growth compared to conventional loans, with FHA loans reaching a delinquency rate of 11.03% in Q4 2024, a 57-basis-point quarterly increase.

The spread between FHA and conventional delinquency rates widened to 841 basis points, highlighting the vulnerability of government-backed borrowers.

CoreLogic’s December 2024 Loan Performance Insights Report indicates that while the national delinquency rate held steady at 3.1% year-over-year, serious delinquency rates (90+ days past due) remained unchanged at 1%.

However, specific metro areas like Asheville, North Carolina (+1.4 percentage points) and Augusta-Richmond County, Georgia-South Carolina (+1.2 percentage points), saw significant spikes in serious delinquencies, often linked to localized economic challenges.

Risks and Rewards for Investors

The rise in delinquencies presents both risks and opportunities for investors.

Regional banks and consumer lenders with heavy exposure to FHA and VA loans face increased credit risk, particularly as foreclosure inventories grow.

The MBA reported a 5-basis-point rise in loans entering foreclosure in Q1 2025, with VA loans reaching a foreclosure inventory rate of 0.84%, the highest since Q4 2019.

Investors in mortgage-backed securities (MBS) should monitor the performance of these loan types, as credit rating agencies may reassess risk profiles, potentially affecting MBS yields.

However, opportunities exist for strategic investors.

CoreLogic notes that strong home price growth—up 19% year-over-year in January 2025—has bolstered homeowner equity, reducing the likelihood of widespread foreclosures.

This equity cushion allows distressed borrowers to sell or refinance, mitigating losses.

Investors focusing on distressed assets or real estate in undersupplied markets, such as the Midwest or inter-mountain West, may find value, as suggested by Forbes Business Council members.

Additionally, the FHFA’s June 2025 directive allowing cryptocurrencies like Bitcoin to count as mortgage reserves could attract new buyers, potentially stabilizing demand in certain markets.

While delinquency rates remain below historical averages, the upward trend signals caution.

The ICE Mortgage Monitor Report projects that mortgage performance will be a focal point in 2025, particularly for FHA and VA loans.

A cooling labor market or sustained inflationary pressures could exacerbate delinquencies, especially if unemployment rises from its current 4.2% level.

Conversely, anticipated Federal Reserve rate cuts in late 2025 could ease borrowing costs, potentially lowering delinquency rates by making homeownership more affordable.

Freddie Mac forecasts mortgage rates dropping below 6.5% in 2025, which could stimulate housing demand and support recovery.

Strategic Considerations for Investors

• Monitor Regional Risks: Focus on markets with stable employment and lower exposure to natural disasters to minimize delinquency risk.
• Diversify Portfolios: Explore opportunities in undersupplied rental markets or eco-friendly properties, which are gaining traction due to sustainability trends.
• Leverage Technology: Use AI-driven analytics to identify high-yield opportunities and assess property resilience, as climate risks increasingly influence investment decisions.
• Track Policy Changes: Stay informed on regulatory shifts, such as the FHFA’s crypto integration, which could reshape borrower profiles and market dynamics.

The rise in mortgage delinquencies in 2025 reflects broader economic pressures, from high interest rates to resumed student loan payments.

While the housing market remains resilient due to strong equity and low foreclosure rates, investors must stay vigilant.

By focusing on stable markets, leveraging data-driven insights, and anticipating policy shifts, smart investors can navigate risks and capitalize on emerging opportunities in a complex economic landscape.

Also Read: Nearly One Third of Major US Housing Markets Now See Price Plunge

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