FHA Loan Delinquency Rate Jumped 58 Basis Points Year-Over-Year
Min 1: Property Taxes Climbed $700 Annually Since 2020
The stressors hitting FHA borrowers show up in the numbers. Property taxes climbed about $700 annually since 2020 while insurance adds roughly $1,000 per year in several high-risk states according to Federal Housing Finance Agency tracking. Homeowners insurance premiums jumped 52% higher than 2020 levels nationally, with average homeowner now putting about one-third of monthly payment toward taxes and insurance according to Intercontinental Exchange analysis. Florida homeowners pay third highest property insurance premium in country at $486 monthly average—more than twice the national average for $300,000 home per Bankrate November analysis. Between 2021 and 2024, average homeowners insurance cost increased more than 24% with some states like Illinois jumping over 50%, while rising home prices and local spending caused property tax bills increasing more than 27% since 2019 per CoreLogic data.
Min 2: FHA Delinquency Rate Hit 10.78% Seasonally Adjusted
Total seasonally adjusted FHA delinquency rate—which includes all loans at least one payment past due—increased 21 basis points quarter-over-quarter to 10.78% in third quarter 2025 according to MBA National Delinquency Survey. That compares to just 2.62% for conventional loans and 4.50% for VA loans. The spread between FHA and conventional delinquency rates reached 841 basis points by end of fourth quarter 2024, while VA and conventional spread sat at 208 basis points. Compared to one year ago, seriously delinquent rate rose 70 basis points for FHA loans and 57 basis points for VA loans but only 2 basis points for conventional loans. Economic headwinds including inflationary pressures, natural disasters, lower personal savings rates, increasing consumer debt, and rising escrow costs for insurance and property taxes drive the divergence as FHA borrowers with lower down payments and tighter budgets feel pressure first.
Min 3: Five States Posted Largest Quarterly Delinquency Increases
Arizona led quarterly delinquency increases at 29 basis points followed by Louisiana at 28 basis points, Indiana at 28 basis points, Iowa at 26 basis points, and Texas at 24 basis points according to MBA tracking. The geographic concentration suggests regional economic weakness rather than national trends, with energy-dependent states and agricultural markets facing particular stress. Foreclosure inventory rate reached 0.50%, up 2 basis points from prior quarter and 5 basis points from year earlier. Percentage of loans on which foreclosure actions started in third quarter rose by 3 basis points to 0.20%. Non-seasonally adjusted seriously delinquent rate measuring loans 90 days or more past due or in foreclosure hit 1.61%, up 4 basis points from second quarter and 6 basis points from last year.
Min 4: COVID-Era Loss Mitigation Options Ended Without Replacement
Walsh noted third quarter 2025 results were not impacted by ending of COVID-era FHA loss mitigation options and recent government shutdown, but those events may affect future quarters. VA Servicing Purchase Program ended without replacement loss mitigation option approved by Congress. Further increases in foreclosure rate could result if economic conditions deteriorate according to MBA analysis. Home price declines in some parts of country may hinder homeowner's ability to sell or refinance, trapping borrowers in negative equity positions. Total mortgage delinquencies increased to 3.99% of all loans outstanding at end of third quarter, up 6 basis points from prior quarter and 7 basis points year-over-year. The delinquency rate includes loans at least one payment past due but excludes loans in foreclosure process.
Min 5: Investment Opportunity in Distressed FHA Notes
The FHA delinquency spike creates opportunities for investors who understand workout protocols. Banks and servicers holding delinquent FHA loans at 90-plus days face regulatory pressure to resolve or sell. Note buyers acquiring distressed FHA paper at 60 to 70 cents on dollar can pursue loss mitigation including forbearance, loan modifications, or partial claims through HUD programs. An investor who buys $5 million face value of delinquent FHA notes at 65 cents pays $3.25 million, works out 70% of loans through modifications generating $3.5 million in performing note value plus forecloses remaining 30% recovering $1.5 million through REO sales—total $5 million recovery on $3.25 million investment delivers 54% gross returns before servicing costs. The strategy requires expertise in FHA claims process and workout timelines but offers superior risk-adjusted returns compared to performing note acquisitions.
The Takeaway
FHA loan serious delinquency rate hit 4.12%, up 58 basis points year-over-year marking largest increase across all loan types as property taxes climbed $700 annually since 2020 while homeowners insurance jumped 52% with Florida averaging $486 monthly—double national average. Total FHA delinquency rate reached 10.78% seasonally adjusted versus just 2.62% for conventional loans, creating 841 basis point spread as economic headwinds including inflation, natural disasters, and rising escrow costs squeeze borrowers with lower down payments. Arizona led quarterly delinquency increases at 29 basis points followed by Louisiana, Indiana, Iowa, and Texas all posting 24 to 28 basis point jumps as foreclosure inventory rate hit 0.50% up 5 basis points year-over-year. COVID-era FHA loss mitigation options ended without Congressional replacement while VA Servicing Purchase Program also terminated, potentially driving further foreclosure increases as home price declines in some regions trap borrowers. Investors acquiring distressed FHA paper at 60 to 70 cents on dollar pursue loss mitigation through HUD programs, working out 70% of loans while foreclosing remaining 30% to generate 54% gross returns on $5 million face value portfolio requiring expertise in claims process but offering superior risk-adjusted returns.
