2025 Mortgage Delinquencies Tick Up: Will Housing Bounce Back OR Break Down?

ICE’s February 2025 Mortgage MonitorICE’s February Mortgage Monitor was just released. Is this the year everything changes in 2024? We saw the softest home price growth since 2011. So do recent signs point to a bigger shift occurring here in 2025? Andy Walden, vice President of research and analysis from Intercontinental Exchange joins us today to reveal new data on inventory, on climate risk and rising delinquencies. If you’re curious whether housing will bounce back or break down, you won’t want to miss these insights. I’m Dave Meyer. Welcome to On the Market. Let’s get into it. Andy, welcome back to On the Market. Thanks for being here.You bet. Thank you for having me.I’m hoping we could talk a little bit about the recent mortgage monitor report that you put out. We’ll put a link to that if anyone wants to check it out. A lot of great information in there. But maybe you could start by just giving us a couple of highlights about the housing market as you see it right now.Yeah, and there’s obviously a lot in that latest report. We go everywhere from talking about mortgage performance, homeowners ability to make their mortgage payments. In today’s market, you’re seeing a gradual rise in overall delinquencies and it’s really centered around borrowers that have taken out FHA loans, those kind of low to moderate credit score, lower down payment type mortgages is where we’re starting to see a little bit of a pressure point on homeowners out there in the market. So we took a deep dive into that this month we looked at the latest California wildfires, the magnitude of the impact that we’re seeing in those particular areas and some of the downstream ramifications into the insurance market, into the municipal bond market. Some of those local municipalities that are kind of struggling in the wake of that as well. And then all of the latest and greatest as we enter into the spring home buying season.Alright, great. Well, let’s just go after those in order. I’m really interested in this rise in delinquencies because for years I’ve been saying on the show we’ve had many guests on the show talk about how there’s not really a huge risk of a massive crash or decline and a lot of that the reason and logic behind that is this ability for Americans to pay their mortgage. We haven’t seen a lot of delinquencies, we haven’t seen a lot of foreclosures, but it sounds like there are at least a couple of cracks right now. And you mentioned that specifically with FHA loans, right?Yeah, exactly. And I mean I think we are still in a strong position when you look at the underlying strength of mortgaged homes in the us, the average credit score of mortgage holders is still near an all time high. The average mortgage holder has about a 750 credit score. So
You’re still looking at a lot of strength there. You’re still looking at historically low delinquency rates, but you are starting to see little pockets where delinquencies are starting to arise and I think it will become a bigger part of the conversation this year. Yeah, again, to your point, it’s right around that FHA group, right? The FHA for folks that aren’t aware of it, they kind of focus in on the low to moderate income segment of the market and the low to moderate credit score segment of the market. And without, if we go back to 2006, it was a lot of privately securitized loans. I think we’ve all seen the movies and read the books about what happened back then. There really isn’t that same environment today. And so if you are a lower earner in the US or you have more moderate credit background, it’s one of the few areas where those folks have been able to go to get a mortgage and buy a home in today’s market.
And you’re starting to see a little bit of a pressure in that segment. You’re seeing delinquency rates that are about three quarters of percent higher than they were at this point last year. So they’ve been slowly creeping up and that’s been kind of gradually happening over the last couple of years out there in the market. It’s very different than what you’re seeing. I think everybody’s heard of GSE mortgages or more traditional mortgages in the market performance. There’re still very strong. And when you look at some of the larger banking institutions in the us, they tend to focus on higher income clients, especially after the great financial crisis. They’re very niche in terms of very high credit score lending and more high income lending. You’re still seeing very strong performance among those particular mortgages. And so I think cracks is the right way to put it, a little bit of a niche there in the lower end of the market where you’re starting to see a little delinquency pressure.You said that they’ve gone up the delinquency rate 75 basis points over the last year. Is this one of those scenarios that we’ve been in for the last few years where it’s going up from a really low level or have we now reached a level of delinquency that would be concerning back in the 2010s or how does this compare to 2019? I guessIt’s a good question. I mean, this is nothing like what we saw in 2019 I think is a little bit of a background. We’re coming off of record low delinquency rates. I think it will be a topic of conversation. I think they are rising quickly enough that you will see more conversations taking place about it this year. It’s not a 2005, 6, 7 8, 9 type of environment for a number of different reasons. And I think when you start to talk about delinquency rising, there’s a few different places where your eyes go, is this a risk to folks that invest in the market? Could this impact losses? And then another focal point is, does this manifest into increased foreclosure activity and contagion out there into the broader real estate market? I don’t think we’re at that point yet. Right? When you start to look at foreclosure activity out there in the market, we saw the lowest level on record for 2024, both in terms of the number of foreclosures that were initiated and the number of foreclosures that were completed in any calendar year outside of when we really halted foreclosure activity in the wake of the covid pandemic.
And so you’re still seeing very low foreclosure levels. Could we see some modest increases next year in foreclosure activity maybe, but we’re sitting on record low levels of really default and foreclosure activity out there in the market.Good to know. And everyone just keep that in mind. We’re trying to bring you new trends. As Andy said, it’s something that we should probably be keeping an eye on and there should be a conversation about it. But in the grand scheme of things, it’s small. I am curious, Andy, I don’t know this off the top of my head. What percentage of the total mortgage market are FHA loans in the first place?Yeah, it’s right around 15% of the market. So there’s about 8 million FHA loans outstanding right now. About 15% of all loans are FHA mortgages.Okay. So yeah, it’s not a majority of mortgages. It’s a considerable amount if things really started to get bad. But hopefully you could see that this is a sliver of the market and it’s still low compared, but it is a shift in trend, which as an analyst is always sort of interesting to see. And I don’t know if you have this kind of data, but do you have any insights into what’s leading to these delinquencies?And I think that goes to the broader economic market out there. And you look at some of the pressures, you look at the stimulus that happened post covid pandemic, and you look at the burnoff of that stimulus, you look at secondary debt. So you look at auto loan, student loan, credit card debt by income band, and you start to see that really the economic shift that we’ve been seeing recently, the rises in inflation, the gradual rises in unemployment have been more acutely affecting folks that are on the lower end of the income spectrum. They’re folks that run a little bit leaner. They tend to spend a higher share of their incomes in any given month on housing and food and water and those basic necessities. And so when you start to see some pressure and you start to see inflation out there in the market, those unfortunately are the homeowners and just everyday Americans that are impacted first. And so you see that kind of manifest itself into the lending products that are focused into those areas first.And so I think the question then is does this continue and how bad does it get? It sounds like we just have to wait and see and see how the broader economy performs to get any sort of lead indicator.Yeah, exactly right. And you keep an eye on that unemployment rate because the number one factor of can you make your mortgage payment in any given month is do I have income coming in the door to make that payment? Right? And so unemployment is obviously an indicator of what happens with overall delinquency and overall stress in the economy. So that’s certainly an area that we will be watching. And then certainly the monthly delinquency rates not only on mortgage debt out there in the market, but all of these various debt deadlines as well. How are folks performing on their student loans and their auto loans and their credit cards can also be an indication of what may be to come on the mortgage side of the house as well.Definitely. And we will keep you posted as we’ve learned more about this. Of course. Andy though, you mentioned that foreclosures haven’t ticked up at all. How do you make sense of that? Is it just that the rise in delinquencies is too new for it to have worked through the foreclosure system at this point? It’s just kind of early stage delinquencies and just for everyone listening, delinquencies are usually tracked by 30 days, 60 days, 90 days, and it takes a while for this to work through the system. So is that sort of what’s going on here, Andy?I think there are a few key factors here, and you’re absolutely right. Foreclosure typically doesn’t take place, especially in the post global financial crisis world. It doesn’t take place until 120 days delinquent or more. That’s a little bit of it. You’ve started to gradually see serious delinquency rates trend up as we’ve been talking about. They’re still historically low as well. So that’s one component of it. I think there’s two other key pieces that are leading to relatively minimal foreclosure activity out there in the market right now. One of them is increased loss mitigation and especially the increased utilization of forbearance plans. Those became very popular in the wake of the covid pandemic. They typically are used when homeowners have short-term losses of income. It just simply means you forebear payments or you don’t make payments for a short period of time, and then they’re either tacked on to the end of your loan or added onto your loan balance.
At the end of that period, that’s become a very popular first tool to mitigate some of this foreclosure activity, and you’re still seeing a lot of that activity taking place even after the covid pandemic is over. So that’s part of it is we’ve just gotten better at loss mitigation, which just simply means putting programs out there for homeowners that are struggling to get them back on track. We honed those tools and built those toolkits in the wake of the global financial crisis. We built them again and honed them more in the wake of the covid pandemic. And so servicers out there are really good at helping homeowners at this point in time and have become relatively efficient at it. That’s one. The second piece is equity. If you look at the average mortgaged home in the us, it’s 55% equity, 45% debt. That means you have more equity in your home than you’d have debt on your home for the average homeowner.
And folks have incentive to hold onto their home and make things work. But also for folks that just simply can’t, other options outside of foreclosure as well, you can list your home for sale with a local realtor. It’s obviously not what you want to see happen for folks, but if you’re struggling and can’t make payments, you can always sell, recoup that equity, pay off those debts and kind of reset yourself financially that banking institution has made whole, that homeowners then kind of reset financially and can move forward from there. So a number of different reasons why you’re seeing it, but those are just a couple on why we’re really not seeing a whole lot of foreclosure activity despite a little bit of a rise in mortgage delinquencies.I think that, yeah, both are super important things. Reminder as for context, we’re nowhere near the levels of delinquency or foreclosure that we were into the runup to 2008, not even close. So don’t worry about that. But I think the point here that Andy’s making is important that if things get worse, which they could, we’ll see what happens. One banks just seem to have a better toolkit than they did in 2008, you said loss mitigation, it seems back then they were sort of caught a little flatfooted and didn’t really know exactly how to handle this huge uptick in delinquencies. Their banks generally better than that. And even if people get to the point where they’re going to get foreclosed on, they have just so much equity. The chances of people actually being underwater and having to do a short sale just seemed very low unless maybe you bought, I don’t know, in the second half of 2022 or something like that, it just seems very unlikely that you’re going to find yourself in that position.Yeah, that’s exactly right. And I mean, you made a good point there at Ann. There’s a noticeable distinction in the market of folks that have bought over the last couple of years in the post fed rate increase world versus folks that have been in their home for three or four years or longer, some different dynamics. And so certainly less equity there for folks that maybe bought over the last couple of years that bought at higher debt to income ratios. I think that’s a little bit different classification there. But again, yeah, holistically in the market, a lot of equity out there that homeowners are sitting on. In fact, we saw record levels of equity entering any year here in 2025.Got it. So this is something of course we’ll keep an eye on, but as of right now, at least, Andy, I don’t imagine this is really impacting any inventory levels or really any sort of broader dynamics in the housing market right now.No, no, not yet at all. Certainly something that investors inside of the, I mean for folks that know the mortgage market, these get packaged into Ginnie Mace securities. So certainly something that folks in that Ginnie Mace space will have an increased eye on this year, no doubt, but not something again, I mean when you look at the typical everyday American and the way that this would impact them, it would be kind of contagion through what we call distressed inventory or foreclosure REO home sales inside their local neighborhood. We’re just simply not seeing that type of impact in the market right now. In fact, we’re seeing very low levels of foreclosure sale and distressed sale activity out there in the market.Alright, well, I do want to move on to the discussion about insurance and some of the events in California, but first we have to take a quick break. Welcome back to On the Market. I’m here with Andy Walden talking about the latest trends in the housing market. Before the break, Andy and I talked about what’s going on with a modest increase in delinquency rates on FHA loans. Andy, you said that one of the other major points you’ve been looking into is some of the fallout from the tragic fires that happened in California. Can you tell us a little bit more about your research there?Yeah, absolutely. And obviously the human aspect there is first, obviously our hearts go out to everybody that’s been impacted by those wildfires in Los Angeles. I mean, we’ve done a lot of research really across the board overlaying the geospatial data from those fires on top of public records data, mortgage performance data, municipality data and beyond. And when you look at the impact, I think this is something that could resonate across the market. I think it could be pivotal for the way that insurance is dealt with, not only in the state, but you could see this resonate across the state of California in terms of insurance prices. You could see it resonate outside of the state in terms of insurance prices. So a lot of different components to look at there. When you look at the number of homes that were impacted, and you look at those wildfire zones, you’re talking 17,000 single family and condo residences in those areas.Wow.Our A VM data says that it’s about 45 billion in underlying value of those particular homes. That makes these in aggregate some of the largest wildfires and most destructive wildfires in California’s history and even nationally speaking. So some very significant impacts in those particular areas.And I mean there’s so many things to try and unpack here. Obviously, like you said, the human element the most important is tragic and hopefully everyone’s getting back on their feet. But is there precedent for this, how this magnitude of loss might impact, of course, the local housing market, but just California in general? Do you think it will be felt throughout the state?I do. I mean, there’s a couple. You’ve got the campfire out there in California. You’ve got the tubs wildfire out there in California that you can kind of run some scenarios off of. Obviously those are a few years ago. And so with home prices rising that the way that they have and with insurance dynamics shifting since then, I think this could be even more impactful for the market from that point forward. I think the area, or maybe I focus the most here is the insurance component of what’s going on and how this impacts homeowners from an insurance standpoint. When you look at the California Fair Plan, which is
That backup plan, that insurer of last resort out there, they were the second largest insurer of homes that were affected in these particular areas. And you’re talking about several billion of exposure that fair plan has when you look at the potential losses there and the backdrop of that and the fact that if the fair plan can’t cover those insurance payouts that some of the other insurers may see as assessments in those particular areas. And you’ve seen this broad move away from insurance from the private market in California as a whole. Again, I think this could be very, very pivotal for the state in terms of the way that they structure insurance. And again, it could have ramifications for everyday homeowners in those particular areas that weren’t even in these wildfire zones and could have ramifications outside of that as well. Another point that I would make there is the cost of insurance, which I kind of just got to, but if you look at the cost per thousand dollars of coverage in California, it’s about 70 cents on the national dollar. And again, that’s part of the reason why you’ve seen the broader insurer base not be willing to enter into these higher risk zones because they simply can’t make it pencil out in terms of what they’re receiving for premiums for the risk that they’re taking in those particular areas. So again, it’s a market that’s been somewhat broken over the last few years in terms of insurability, in terms of insurance participation. So again, I think you could see wide ranging ramifications not only in the mortgage market, but specifically in the insurance market as we go forward.Of course in California, we’ve talked about on the show quite a few times, California does seem like an extreme example. You hear certain similar things in Florida as well. But I’m curious if you think this will impact the overall insurance market, seeing insurance costs not just in these higher risk areas go up everywhere and after these sort of catastrophic losses that are obviously going to have huge financial implications for the insurers. Is there a risk that insurance in general is just going to keep going up in terms of price?Yeah, I do. And it’s a trend that’s already been here for a couple of years. We did some research a couple of months ago and looked at the sub components of homeownership, right? Your principal payments, your interest payment, your tax payment, your property insurance payment, property insurance over the last four and a half years has been the single fastest growing sub component of the mortgage payment. It’s up about 52% for the average homeowner. And you’re right, it’s not just a California issue. When you look at where insurance is going up the most, this won’t come as a surprise, but the Gulf Coast, right, there are a number of Florida markets where you’ve seen 80 to 90% increases in the average insurance premium, and it’s absolutely affecting homeowners out there in the market, and it’s causing them to make slightly different decisions as well. Not only where do I buy because uninsurable is a big component there, but when you look at the underlying dynamics of the type of insurance they’re picking, they’re picking insurance policies that maybe have a higher deductible so that they can make the monthly cash flows work, which may put them at a little bit higher risk if there’s an event in their particular area as well.
So yeah, I do think we have a conference coming up here in Las Vegas in a few weeks, and we have several sessions on climate and property insurance and disaster risk because it is becoming a bigger and bigger topic of homeownership in general and in the mortgage market specifically.I’m curious, Andy, in any of your research, this might just be speculation, but if you have any thoughts or ideas on how this can be forecast because as investors, it’s pretty difficult to try and underwrite deals right now when this element of, like you said, this element of your home ownership that used to be pretty boring and pretty predictable has become this pretty meaningful variable.And we’ve spent a lot of time on that here at ice. We have a ice climate team that is specifically focused in on this, looking at natural disasters as they happen, looking at climate projections over time, looking at the value at risk. So we have this value at risk metric that basically looks at the annualized expected loss on an individual property, depending on not only where it’s located, but what it’s made of, what the construction materials are, what the dynamic of that particular property is, and then you can look at future climate expectations and what the risk is on any particular loan. And so we’re getting more and more into that, and it’s becoming obviously in the insurance space, but for folks investing in mortgages and investing in homes, they are more and more focused on this as well because of the increased frequency and increased damage coming from these particular storms.
I’ll give you an example from the recent California wildfires. We looked at that value at risk metric for homes in these wildfire zones by insurance company. And what we found was first of all, those homes that were affected by the latest wildfire were three to four times as risky from a simple annualized expected loss as the broader California market. And when you look at those insured by the California Fair Plan, you’ve seen other insurers back away from those risky properties. The fair plan has two and a half times the average value at risk of other insurers in the area. So not only are they taking on a bigger share of the market, but they’re taking on more risk in those particular areas. So again, when you start to look at climate change in general, natural disaster risk, it is an acute focus and you’re seeing more folks overlay climate models on top of their data to try to get a gauge for that and really understand the risk that they have out there.I own some properties in the Midwest, which everyone says has the lowest risk of natural disaster, but those prices have been going up too. So is that just spillover because the insurance companies need to spread the risk among the entire insured pool even if the properties aren’t in a high risk area?It’s a little bit of both. So you have some of that activity, but when you look at the Midwest, it’s tornado risk, it’s thunderstorm wind, hail risk in those particular areas. And so it’s kind of interesting when you look at a map of the US absolutely you have higher premium prices down there in the Gulf Coast because you know have that hurricane risk and damage that comes through those particular areas. But the map really kind of looks like an L where it comes straight down the central part of the country through Nebraska and Kansas and Oklahoma and Texas, and then goes through the Gulf Coast and even up
Through North and South Carolina as well. I’ll give you a relative metric here. We created this metric called cost or premium per thousand dollars of coverage, which creates kind this relative way to look at property insurance costs across the country because we know that home values in the coast and in Florida are higher than they are in the Midwest. But if you look at that relative cost and you look in the Midwestern region of the country that you’re talking about, you’re almost paying twice as much per thousand dollars of coverage as you are nationally as a whole. And again, it’s kind of odd where you look at California and you’re looking at well below average national costs for insurance out there, which creates an insurability issue. It’s not a cost issue in California. It’s the fact that they have restrictions in place that limit how much they can charge you for insurance,ButThat creates an environment where it just doesn’t make sense for insurance companies to insure there. Whereas in the Midwest now you’re able to price in more of that risk, so you’re paying more for insurance, but those companies are willing to insure there because the math pencil’s out for ’em.Andy, I would be to let you get out of here without just asking a little bit more about your predictions for the housing market the rest of the year, but we do have to take a quick break. We’ll be right back. We’re back on the market here with Andy Walden. And before we took the break, I was eager to hear Andy’s outlook for the 2025 housing market. Andy, we’re a couple weeks in, just so everyone knows, we’re recording this in the middle of February. What is your outlook for the rest of 2025 or at least for the next couple of months?And maybe I’ll give you a little bit of historical context. We’ll talk about what does this year look like compared to what we’ve seen the last few years out there in the market. And I think the positive news as we make our way into the 2025 home buying season is more homes available for sale, right? We’ve been talking about this inventory shortage out there in the market for really the better part of the last five years. We have more supply on a seasonally adjusted basis than we’ve had at any point since the early to middle stages of 2020. So for the majority of home buyers out there, you’re going to be entering into a spring home buying season where you have more homes available to purchase to shop amongst than you’ve had for the last few years out there in the market. I think that’s a positive sign from an interest rate perspective, if we look at our ice futures data, which is effectively, you can trade futures in the New York Stock Exchange, just like you can soybeans or corn or any other commodity out there.
When you look at where 30 year mortgage rate futures are trading right now, that suggests that we should see modest improvements in mortgage rates as we make our way through 2025. So we’ll go from the high 6% range is kind of where we stand right now, more towards the middle 6% range as we get into the summer months and early fall months of this year. So some modest improvement there in terms of home affordability as we go slightly better as we get into the late spring buying season than what we saw at this point last year. So similar levels of demand, more supply out there, a little bit softer price environment than what we were seeing at this same point in time last year. So a few positives as we head into the spring buying season for home shoppers out there.Great. Well, I mean that’s pretty similar to what I’ve been expecting, just modest improvements, and I know for our audience, it’s probably not what everyone wants to hear, but you got to hit bottom at a certain point and it needs to, I think I’ll take any incremental improvements right now that we can see.Yeah, absolutely. And I think that’s a good point, right? When you look at a lot of the forecasts out there in terms of sales volumes, in terms of purchase mortgage originations, I mean, pick your metric, a lot of those bottomed out in 2024 with some modest improvement expected here in 2025 and some more modest improvement expected in 2026, and then you look at those price dynamics and it’s soft but positive right now. 2024 saw the softest home price growth of any year over the last decade plus out there in the market, and most forecasts that I’ve seen are for slightly softer price growth this year, but still positive. So again, a slow recovery to get us back to normal, but some positive movement here in 2025.Well, that’s great. I mean, I know, again, I understand it’s not the recovery everyone wants, but I think any positive trajectory is good for us right now. Andy, what about regional differences? We’ve sort of seen this interesting dynamic over the last couple of years where some of the markets that grew the fastest during the pandemic, Florida, Idaho, Texas, are slowing down, whereas the Midwest and Western New York have been really hot. Do you expect that to continue?I do, and here’s why, right? When you look at home prices, inventory has been the key driver of what happens from a price dynamic. And you look at the inventory improvement that we saw in 2024 and kind of the projection forward, if you use just a simple momentum based approach, and what you see when you look across the country is the quarter of markets that are back to normal or above normal in terms of the number of homes available for sale are in the Sunbelt region of the country. You’re also seeing the majority of new construction that’s coming to market happening in that Sunbelt region of the country. And so where you see more abundant inventory, you see softer price dynamics, and that’s what you’re seeing in the southern part of the US as well. In fact, of the 10% of markets that saw prices come down a little bit last year, that’s the region that they’re in, namely Texas, Florida, a little bit of Tennessee, Colorado, relatively soft right now as well.
When you look at, when do other markets start to get back to what feels more normal in terms of inventory, it’s really, again, a quarter back. The 15 to 20% that would normalize this year, they’re in the south, they’re partially in the west. 2026 would be a little bit of a west recovery. And then when you look at the Midwest and Northeast that have been the firmer markets recently, it could take a few more years for inventory to get back to normal levels in those areas of the country. You’re seeing some of those markets that are still 60 to 80% short, and so those same price dynamics that you’ve just been describing, south, southeast, relatively soft, Midwest, northeast kind of leading in terms of firmer price growth. I think those dynamics, at least based on what you’re seeing in inventory and momentum of inventory improvement right now, those dynamics still kind of stay put here as we make our way through the early stages of this year.All right. Great. Well, Andy, thank you so much for joining us. This has been incredibly informative. I really appreciate you sharing all your research and work with us.I appreciate you having me. Again,That’s all for today’s episode of On the Market. Thanks to our guest, Andy Walden from Intercontinental Exchange. We hope you gained valuable insight from the latest ICE Mortgage Monitor data. If you found this episode helpful, share it with a fellow investor and drop us a comment on how this data might impact you. I’m Dave Meyer. Thanks for listening.