Preparing your organization for increased mortgage defaults

2026 Mortgage delinquency outlook

Where do delinquencies stand today?

In 2025, delinquencies trended higher for various consumer borrowings. There was an uptick in delinquencies in student loans, automobile loans, credit cards and mortgages in certain geographical areas. While elevated from post-pandemic lows, mortgage delinquencies are relatively unchanged, with a slight increase from the prior year. According to the Mortgage Bankers Association third quarter survey, the delinquency rate on one-to-four-unit residential properties increased to a seasonally adjusted 3.99%. Year-over-year, FHA loan delinquency increased, while VA loan delinquency slightly decreased, and conventional loan delinquency was relatively flat.

While earlier stage delinquency maintained levels with only nominal increases during the third quarter, the number of mortgages that were deemed seriously delinquent increased. Serious delinquency consists of mortgages that are 90 or more days delinquent or in foreclosure. In 2025, there was a higher concentration of FHA loans that were designated as seriously delinquent, with a continued increase during the third quarter. VA loans also saw a slight increase in serious delinquency, while conventional loans saw a slight decrease. Higher delinquency rates are more typical for FHA loans, given their concentration in lower-income and first-time borrowers; however, a growing share of VA borrowers are starting to become seriously delinquent.

Borrower-level pressures that may drive future delinquencies

While mortgage delinquencies are still below historical averages, there are headwinds that could result in delinquencies increasing in 2026. Effective Aug. 1, interest resumed accruing for borrowers enrolled in the SAVE (Saving on a Valuable Education) income-driven repayment plan, which limits payments based on income while those borrowers remain in administrative forbearance. Dates for when repayment will need to resume vary, with some running out to 2028, but repayment of student loans could come sooner.

Separately, the current administration has announced that it will begin resuming wage garnishment for federal student loan borrowers who are in default. For those borrowers who have both a mortgage and student loans, this could create financial constraints. For borrowers with Adjustable-Rate Mortgages (ARMs) or plans to refinance, many have remained “house rich but cash poor” longer than expected, as the rate-cut cycle was initially slower than anticipated. While rate cuts later accelerated, elevated yields have limited the pass-through to overall mortgage rates. Further, elevated consumer prices resulting from the prior inflationary period, combined with variability in Consumer Price Index (CPI) and Producer Price Index (PPI) readings due to tariffs and the recent government shutdown, along with emerging uncertainty in the labor market, create conditions that support continued pressure on borrower performance and elevated delinquencies.