A Check-In on the Mortgage Market

U.S. mortgage balances climbed to $12.94 trillion in Q2 2025, with overall delinquency rates modestly increasing to 2.1% (30+ days past due) but remaining historically low. The New York Fed's report indicates a disproportionate rise in delinquencies among FHA loans, which comprise 38% of past-due balances despite being only 12% of the total market, particularly concentrated in Southern states. Despite this segment's weakening performance, potentially reflecting pressure from softening home prices, the broader mortgage market remains robust due to significantly improved underwriting standards and higher credit quality compared to 2008, mitigating systemic risk.

Analysis

The U.S. mortgage market, with balances reaching $12.94 trillion in Q2 2025, exhibits broad stability but with a notable pocket of growing risk. While overall 30+ day delinquency rates remain historically low at 2.1%, this figure masks a significant divergence in performance by loan type. Federal Housing Administration (FHA) loans are experiencing a sharp increase in new delinquencies, with quarterly transitions into past-due status exceeding 4%. Consequently, FHA loans now constitute a disproportionate 38% of all delinquent balances despite representing only 12% of the total mortgage market, a notable increase from their 30.5% share of delinquencies pre-pandemic. This stress is geographically concentrated in Southern states, where FHA loans are more prevalent. However, systemic risk appears contained, as the broader market is anchored by high-quality Government-Sponsored Enterprise (GSE) loans, which account for 52% of balances but less than a quarter of delinquencies. Furthermore, post-2008 underwriting standards remain robust, with average credit scores for new originations near historical highs, including a score of approximately 700 for recent FHA borrowers, which is 38 points higher than in 2008.

Key Decisions for Investors

• Investors in mortgage-backed securities should scrutinize exposure to instruments backed by FHA loans, such as Ginnie Mae securities, given their rising delinquency rates relative to the stable, high-quality performance of GSE-backed collateral.
• Monitor regional banks and real estate assets with heavy exposure to Southern states, as the geographic concentration of underperforming FHA loans in these areas presents a localized risk should home prices continue to soften.
• View the weakening performance of FHA borrowers as a potential leading indicator of financial stress among lower-income households, even though high overall credit quality in the mortgage market mitigates immediate systemic risk.
• The continued strong performance and credit quality of loans securitized by Fannie Mae and Freddie Mac reinforces their position as a stable cornerstone of the U.S. housing finance system.