How Mortgage Delinquencies Could Shape the Foreclosure Landscape Ahead

You may be seeing headlines about how foreclosures are rising. And if that makes you nervous that we’re headed for another crash, here’s what you should know. 

According to ATTOM, during the housing crash, over nine million people went through some sort of distressed sale (2007-2011). Last year, there were just over 300,000.

Despite the recent rise, delinquency numbers remain significantly lower than in past cycles. So, what’s ahead? Is a foreclosure wave looming? The short answer: no.

Here’s why. Industry experts view mortgage delinquencies—loans overdue by more than 30 days—as an early indicator of possible future foreclosures. The latest data on delinquencies offers a reassuring outlook for the market overall.

Currently, overall delinquency rates are steady compared to where they stood at the end of last year, indicating we’re not experiencing the type of rise that would suggest widespread problems.

But there are some key indicators to continue to watch. Marina Walsh, Vice President of Industry Analysis at the Mortgage Bankers Association, explains:

“While overall mortgage delinquencies are relatively flat compared to last year, the composition has changed.”

Right now, borrowers with FHA mortgages currently make up the biggest share of new delinquencies (see graph below):

Here’s why this might be happening: Borrowers with FHA loans tend to be more vulnerable to economic shifts. With ongoing concerns like recession fears, persistent inflation, and employment challenges, it’s understandable that this segment of the market is feeling more pressure. However, this doesn’t mean a market crash is imminent.

Looking back at the data, while FHA loan delinquencies are higher than usual, delinquency rates for other loan types remain low and stable. During the last crash, all four loan categories showed significantly elevated delinquency rates.

This indicates that the overall mortgage market is in a much stronger position than it was during the 2008 crisis. As ResiClub points out:

“The recent uptick in mortgage delinquency seems to be concentrated among FHA borrowers, however, mortgage performance remains very solid when viewed in light of the twenty-year history of our data.”

Top Region for FHA Loan Concentration

Here’s another reason this isn’t a signal of trouble ahead. FHA loans only make up about 12% of all home loans nationwide. But like anything else in housing, local data matters. There are some regions of the country where there are more of this type of loan than others, particularly the South.

The map below does not show how many FHA loans are delinquent. It just shows the overall concentration of FHA loans by state, so you can see which regions have the greatest volume (see map below):

As the Federal Reserve Bank of New York explains:

“Looking at geographic concentrations of loans, recent data indicate that a higher proportion of mortgage balances are delinquent in many of the southern states . . . we see that higher delinquency rates coincide with a higher share of FHA loans across states.”

Just remember, even the delinquencies rates we’re seeing now aren’t as high as they were in 2008. Again, this is not a signal of a crisis. But it is something experts will monitor in the months ahead.