For most people, the foreclosure crisis is a distant memory.

Foreclosure activity, in fact, has been unusually low since the government implemented a national moratorium and an unprecedented mortgage payment forbearance program at the beginning of the COVID-19 pandemic.

Five years later, foreclosure activity is still about 30% lower than it was in 2019, but appears to be gradually working its way back up to pre-pandemic levels. Much of this increased activity is being driven by deteriorating loan performance in the FHA portfolio, a situation being closely monitored by mortgage industry analysts and default servicing professionals.

In fact, half of all seriously delinquent mortgage loans – loans 90 or more days past due – are FHA loans, despite the fact that FHA loans make up only about 11% of all active mortgages. And this may only be the tip of the iceberg: there are signs that FHA loan delinquencies and defaults might get worse in the months ahead.

Is there a perfect storm gaining steam and about to hit the pool of FHA loans?

Storm clouds forming

FHA loans generally have higher delinquency and default rates than conventional loans, but the performance gap between these two loan types has seldom been as wide as it is today. According to the Mortgage Bankers Association Q4 2025 National Delinquency Survey, 4.26% of all mortgage loans were delinquent but not in foreclosure at the end of the year. But conventional loans had a near-record low level of delinquency at 2.89%, while FHA loans were past due at a much higher rate of 11.52% – the highest delinquency rate (excluding the COVID period) since 2012.

More troubling is that delinquent FHA borrowers are becoming more seriously delinquent and doing so more frequently than their conventional counterparts. In its April 2026 Mortgage Monitor, ICE reported that severe delinquencies – loans 90 or more days past due or in foreclosure – had increased by 25% over the past four months.

The report noted that “FHA loans have accounted for more than 80 percent of the recent increase, with seriously past due FHA volumes up by more than 40 percent over that span.”

In the same report, ICE also mentioned that FHA defaults had increased by 12% during those four months, and that “cure rates,” delinquent loans that are restored to current status, were down by 40% for all loans since Q3 2025, but down by about 70% among FHA loans.

Mortgage servicers know the reason for this: The FHA revised its loss mitigation policies on Oct. 1, 2025 in two critical ways.

First, it removed the option of exercising multiple partial claims that borrowers (and servicers) were using, which had been providing delinquent FHA borrowers a way to tap into their home equity to catch up on missed payments. A predictable cycle was happening: borrowers became delinquent; exercised a partial claim; were reclassified as “current” instead of rolling into late-stage delinquency; then they missed future payments and became delinquent again, and exercised another partial claim. Wash, rinse, spin, repeat.

In this process, FHA loan performance looked better than it actually was, but the FHA closed this loophole in October, limiting borrowers to one try at loss mitigation every 24 months. The FHA also implemented a three-month trial period, requiring borrowers to make on-time payments during that period in order to qualify for a permanent loan mod. Both of these rules have resulted in FHA delinquencies increasing significantly.

But changing market dynamics suggest that the worst is yet to come.

Rough seas ahead

Because borrowers with FHA loans can take out a mortgage with as little as a 3.5% down payment, they generally start out with less equity than conventional borrowers. FHA borrowers, often first-time homebuyers, also typically have higher debt-to-income ratios, lower credit scores and lower cash reserves.

None of these factors necessarily makes FHA borrowers an unacceptably high risk; but they do limit the borrowers’ ability to escape a foreclosure if they find themselves in financial distress, or if market conditions take an unexpected turn.

Imagine a scenario where these FHA borrowers unexpectedly found themselves in a situation where monthly home payments suddenly increased dramatically at the same time as home prices fell.

Actually, you don’t have to imagine that scenario because it’s taking place today.

High concentration. High risk.

FHA borrowers, according to the Federal Reserve Bank of New York, are heavily concentrated through the country’s Southern states. Over 20% of all mortgages in Oklahoma and Mississippi are FHA loans, as are more than 16% of mortgages in Florida, Georgia, Alabama, Louisiana, Texas and New Mexico. Nevada, Arizona, Tennessee, South Carolina and Kentucky at over 13%, have a slightly lower concentration of FHA borrowers, but are still higher than the national average.

The reason this is relevant is that metro areas in all these states have experienced falling home prices since the market peak in 2022. Florida and Texas – which each account for over 10% of all FHA mortgage loans – have seen home prices decline between 10 and 20%, likely putting many FHA borrowers effectively underwater on their loans.

But the risk isn’t limited to just those two states: according to data from Zillow, of the 89 major metro areas where home prices declined from March 2025 to March 2026, 53 were located in the states with a high percentage of FHA loans.

Meanwhile, the price of homeownership for those borrowers has risen dramatically. Homeowner’s insurance rose by 8.5% in 2025, following an 18% increase in 2024. Cotality reports that property taxes have risen by over 15% since just before the pandemic. Those rising insurance premiums and property taxes have caused escrow payments to soar by 45% nationally since 2019 – and they now account for over 40% of monthly mortgage payments in many markets (in 10% of markets, escrow payments are higher than the borrower’s principal and interest payments).

But wait! There’s more.

The New York Fed also reports that student loan delinquency rates are also unusually high in the Southern states – every state mentioned above as having a high concentration of FHA mortgages has student loan delinquency rates above 25%, except Florida and South Carolina, which are both just below that rate.

It’s the definition of a “perfect storm” for homeowners with FHA loans: higher monthly payments, falling home values, negative equity, debt collection on student loans and more restrictive loss mitigation options. While we’re still very unlikely to see a massive flood of foreclosures, we’re very likely to see a much higher number of FHA borrowers go under than we have in the past few years.

What this means for industry professionals

The implications for mortgage servicers – and the attorneys, collection agents, process servers, field service firms and other professionals who support them – are obvious. It’s time to anticipate a higher volume of delinquent loans, with a higher percentage of those loans ultimately defaulting and going into foreclosure.

While it will be important to explore all available options to help borrowers avoid a foreclosure, it will also be critical to stay up to date with changing loss mitigation and foreclosure procedures from the FHA and from each of the states where the default volume is likely to increase later this year. And to be ready to inspect, appraise, secure and ultimately bring back to market any homes that aren’t sold at the foreclosure auction.

For real estate agents and brokers, there may be listing opportunities with FHA borrowers who can pursue a short sale – or with homeowners who may still have enough equity to participate in a traditional sale – in order to avoid going through a foreclosure. And there may be an uptick in the number of REO homes to list from HUD, so make sure to be in touch with the asset managers who assign those listings.