Mortgage Missed Payments Climb Back Above Pre-Pandemic Levels as FHA Leads the Increase

TransUnion's Satyan Merchant said he doesn't believe 'anyone's ringing any alarm bells right now.'

Mortgage delinquencies have edged above their pre-pandemic level again, after a stretch during the pandemic when loan forbearance helped many homeowners stay current.

Much of the change is tied to loans insured by the Federal Housing Administration, or FHA. Unlike the broader pre-pandemic pattern, when delinquent loans came from a wider mix of products, FHA mortgages now account for most seriously delinquent accounts, according to TransUnion's latest data.

Even with the uptick, one TransUnion executive said the situation is not yet causing major concern. He pointed to homeowners' equity as a reason many borrowers are still determined to keep paying, along with a labor market that has remained stronger than expected.

Satyan Merchant, senior vice president and automotive and mortgage business leader at TransUnion, said the 60-day mortgage delinquency rate reached 1.71% in the company's Credit Industry Insights Report, which covers 54.7 million mortgage loans and $13.1 trillion in balances.

“It's probably worth keeping an eye on,” Merchant told Mortgage Professional America. “I don't think anyone's ringing any alarm bells right now.”

FHA is the main source of the increase

TransUnion put the account-level delinquency rate at 1.71%, compared with 1.58% in 2019 and 1.42% a year earlier. Merchant said the rate had fallen as low as 0.8% in 2021.

“The trend is like a small kind of stair-step march upwards since 2021,” Merchant said.

The current level is still far below the financial crisis peak, when it climbed above 7%, and it was 1.70% in 2018, the report showed. The borrower-level rate stands at 1.64%, up from 1.36%.

Merchant said overall delinquency rates before the pandemic were in a similar range, but the composition of the loans behind them was different.

“FHA is becoming more of the driver of delinquency versus maybe back pre-pandemic, it was a more even spread of the drivers, like the different loan types, Fannie, Freddie, Jumbo, et cetera,” Merchant said. “It actually gives us more clarity on where to keep our eye on at the moment, which is FHA.”

Nearly half of mortgages 60 days past due, 47.2%, are FHA loans, the highest concentration in more than 20 years. Their delinquency rate has reached 5.60%, up from 4.09% a year earlier.

Performance on Fannie Mae, Freddie Mac and jumbo loans has remained steady. The newest mortgage vintages are also performing well in their early months compared with loans originated from 2022 through 2024.

FHA's share of new originations has fallen to 18.5%, although its share of balances continues to rise. Merchant said FHA borrowers typically have higher loan-to-value ratios and smaller down payments.

“It's not surprising that's where some of this delinquency is coming from,” Merchant said.

Why borrowers are holding on

Merchant said the pressure is not confined to home loans. Delinquencies are also rising among credit card and personal loan borrowers as below-prime consumers make up a larger share of new accounts. Those borrowers represented 42.3% of new card accounts, up from 40.6% a year earlier.

“It's a signal that the consumer that's below prime is looking for credit, looking for access to liquidity,” Merchant said.

He said lenders have priced in that risk, which has helped keep charge-offs under control. In his view, inflation has eased but remains sticky, while wages have started to catch up with prices.

The Bureau of Labor Statistics reported that employers added 165,000 jobs in October, well above economists' expectations, and the unemployment rate fell to 4.1%. Average hourly earnings were up 3.1% from a year earlier.

“Probably the most important macro figure in my world is employment, and employment continues to be strong,” Merchant said.

Mortgage delinquencies often appear late in the cycle, because borrowers usually try every other option before walking away from their homes.

“When the consumer has real or even perceived wealth, which is often in the form of their home, they might be struggling, but they're not going to give back the keys to the house,” Merchant said.

Cotality said home price growth is expected to slow to 0.9% by September 2027, based on data released this week. Even slower appreciation is still better than falling prices, which could alter the decisions of homeowners who are behind on payments.

“If you're struggling to make the payment and your house is losing value, it's like a much different decision, psychological and even logical decision a consumer would make,” Merchant said.

He added that, over time, the housing finance system has held together.

“Sure, we had a crisis. Sure, there are periods of delinquency. But when you zoom out, it's an upward trending story in the United States, which is a really good one,” Merchant said.