The Mortgage Market Is Healthy. That Doesn’t Mean Every Homeowner Is.

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There is a strange contradiction developing in the mortgage market right now, and I think we need to be careful about how we talk about it.

By most broad measures, the mortgage system is still in pretty good shape. There is no national foreclosure crisis, there is no wave of bad mortgages threatening the financial system, and comparisons to 2008 are more likely to confuse people than enlighten them. At the same time, the latest servicing data show that a growing number of borrowers, particularly FHA borrowers, are getting into more serious trouble.

Both things can be true.

The Mortgage Bankers Association reported that 4.37% of mortgages on one-to-four-unit residential properties were delinquent at the end of the second quarter. That was actually seven basis points lower than the previous quarter, which sounds reassuring until you look back a year. The rate is 44 basis points higher than it was in the second quarter of 2025.

The differences among loan types are considerably more revealing.

Conventional mortgage delinquencies stood at 2.72%. VA was 4.89%. FHA was 11.79%.

FHA has always had higher delinquency rates than conventional lending, and nobody should pretend otherwise. FHA serves a different part of the market. It is an enormously important source of financing for first-time buyers and households that may have less money for a down payment or do not fit as comfortably into conventional underwriting. In fiscal 2025, just over 83% of FHA-insured forward purchase mortgages went to first-time homebuyers.

That mission matters, and I do not want these numbers used as an argument for making FHA lending harder to obtain.

What concerns me is not simply that FHA delinquency is higher. It is what has happened to serious delinquency over the past year.

MBA defines a seriously delinquent mortgage as one that is at least 90 days past due or already in the foreclosure process. Across all mortgages, that rate reached 2.06% in the second quarter and increased for the fourth consecutive quarter. For FHA, the serious-delinquency rate reached 6.07%. That is 227 basis points higher than it was a year ago.

Conventional serious delinquency increased only six basis points over the same period.

That is a meaningful difference, and we should understand why it is happening before we decide what it means.

There are already reasons to be cautious about drawing easy conclusions from the data. MBA has pointed to changes in FHA loss-mitigation programs as one factor affecting delinquency performance. The expiration of pandemic-era relief options and the use of trial payment plans can affect how loans are classified while borrowers work through possible solutions. Labor-market conditions also matter, as does the broader pressure consumers are carrying outside their mortgage.

The New York Fed reported this month that Americans ended the second quarter with $18.8 trillion in household debt. Mortgage balances accounted for $13.1 trillion of that, but households also carried $1.26 trillion in credit-card balances and $1.71 trillion in auto debt. The Fed found that transitions into early delinquency ticked higher during the quarter for mortgages and auto loans.

None of those numbers, individually or together, tell me that American homeowners are about to fall off a cliff.

They tell me that some households have less room for things to go wrong.

That distinction matters because the mortgage payment does not have to increase for homeownership to become harder to afford. A borrower who closed on a fixed-rate mortgage several years ago can still see the cost of owning that home increase through property taxes, insurance, utilities and maintenance. Add the costs of food, transportation, childcare and revolving debt, and a household that once had several hundred dollars of cushion at the end of the month can find that cushion disappearing.

For borrowers who came into homeownership with fewer financial reserves, there is simply less room to absorb those increases.

This is where I think our industry sometimes makes a mistake. We spend a tremendous amount of time studying borrowers before they become homeowners and comparatively little time studying what happens to them afterward.

Before closing, we know their income, credit, assets, debts, employment and reserves. We calculate whether they can afford the payment based on the financial picture in front of us at that moment. Once the loan is made, much of the origination side of the business moves on to the next customer.

The servicing data eventually tell us what happened next.

Right now those data are telling us that the majority of borrowers continue to perform well, while a smaller group is having a much more difficult experience. FHA borrowers are standing out in that group.

The latest foreclosure numbers tell a similar story without suggesting anything close to another financial crisis. ATTOM reported 39,906 U.S. properties with foreclosure filings in July, 10% more than a year earlier. Completed foreclosures were up 23%. ATTOM was careful to put those increases in perspective, noting that foreclosure activity remains relatively low by historical standards.

I think that is exactly the right way to read the numbers.

We don’t need another round of frightening headlines about a foreclosure wave that isn’t here. We also shouldn’t be so relieved that this isn’t 2008 that we stop asking why serious FHA delinquencies have risen by more than two percentage points in a single year.

The answer could matter well beyond servicing.

A few days ago I wrote about whether mortgage lending has become so focused on eliminating risk that qualified borrowers are being left outside homeownership. I believe that remains an important conversation. These delinquency numbers don’t change my view, but they do reinforce something that sometimes gets lost when we talk about expanding credit.

Access and sustainability have to travel together.

If FHA is going to continue doing what it was designed to do — helping people reach homeownership who might otherwise struggle to get there — then the industry’s responsibility cannot end when those borrowers receive their keys. We ought to understand which FHA borrowers are becoming seriously delinquent, which loan vintages are performing differently, whether distress is concentrated in particular markets, what role taxes and insurance are playing, how consumer debt is affecting household budgets, and whether borrowers are reaching effective loss-mitigation options early enough.

Those are not arguments for tightening the credit box. They are questions that could help us keep it responsibly open.

There is another reason to take this seriously now. Problems are considerably easier to address while they are still concentrated than after they become widespread. We have a mortgage market with substantial homeowner equity, much stronger lending standards than existed before the financial crisis, and foreclosure activity that remains low by historical standards. That gives us the luxury of looking closely at emerging stress without treating it as a catastrophe.

We should use that luxury.

The mortgage industry has become very good at determining whether somebody can become a homeowner. The FHA numbers suggest we should spend a little more time understanding what helps them remain one.