In late 2024, Comiskey began sifting through a dataset of his own construction: Ginnie Mae pool disclosures cross-referenced with Home Mortgage Disclosure Act (HMDA) records, comprising 2.3 million anonymized loan histories. He found that linking Ginnie Mae data to HMDA origination files allowed him to look at individual payment histories and trace them back to loss mitigation programs.

After peeling back layer upon layer of partial claims, Comiskey had uncovered the stark reality inside the FHA’s post-pandemic safety net. Loan-level performance data shows large numbers of borrowers cycling through partial claims, exhausting mitigation tools while delinquency levels rise.

More specifically, loans that had gone through FHA loss mitigation in the past three years appeared to cure — over and over again — only to fall back into distress.

“That’s where you’re like, this can’t be real — but it is. I’m looking at it,” Comiskey said. “And it’s not just one isolated loan. I see this as a pattern across a number of loans.”

In March 2025, Comiskey reported that of roughly 160,000 FHA COVID-19 Recovery Modifications completed at that point, about 70% had become delinquent and 55% were seriously delinquent.

The FHA COVID-19 Recovery Modification program that was once marketed as a lifeline for struggling homeowners had become one of the clearest markers of ongoing borrower distress.

By March 2026, mortgage companies were staring down a compressed wave of foreclosures.

“It’s up to us as servicers to figure out how to deal with what we have, because it’s inevitable,” said Donna Schmidt, founder and CEO of DLS Servicing. “We’re going to see a pretty large pipeline, and I think it’s only going to go up from here, with more loans being pushed through foreclosure.”

Handcuffed To FHA Procedures

Comiskey may have been one of the first to publicly call out the trend, but Ginnie Mae servicers would have seen delinquencies creeping up well before then.

But there was little they could do about it. Comiskey recalled regulators “chastising servicers for not following the permissive procedures,” referring to a 2021 letter signed by more than 20 state attorneys general.

Schmidt said mortgage servicers got buried for two main reasons. First, she said, the post-COVID loss mitigation framework allowed borrowers to obtain payment relief with little to no documentation. As a result, some borrowers received “as many as six partial claims within four years,” creating “a constant recycling because we never got to the root of the problem,” she said.

After 40 years in default servicing and compliance, Schmidt estimated that roughly 80% of borrowers would typically become current after a single partial claim. But current data, she said, shows that nearly 50% of the loans serviced under Ginnie Mae had a previous partial claim.

But Schmidt also pointed to underwriting trends that emerged as rates rose. In the past three years, 29% of FHA originations had DTI ratios at or above 50%, according to MIAC Analytics. “That’s stunning,” she said. “All it does is set somebody up to fail.”

Rates Broke The Safety Net

FHA’s post-pandemic loss mitigation program helped borrowers survive the immediate shock. In a high rate environment, however, it trapped many borrowers into a cycle of recurring distress, leaving servicers and the broader system to absorb the fallout.

To understand how the system reached that point, Comiskey goes back to April 2020. As part of the CARES Act, the FHA rolled out emergency COVID-19 relief designed to limit losses and prevent foreclosures. Mortgage servicers were required to offer COVID-19 forbearance upon request, allowing borrowers to pause their monthly payments.

The FHA also created a new tool, the COVID-19 Standalone Partial Claim, to help those borrowers get back on track once their payment pause ended. Under that program, missed principal, interest, taxes, and insurance were rolled into arrears that had to be addressed through FHA’s loss mitigation framework. Servicers received reimbursement from the FHA, along with an incentive fee for each loss mitigation action, regardless of how the loan ultimately performed.

For borrowers, the missed payments were added as a second, zero-interest loan with no monthly payment, due only when the home was sold or the primary mortgage paid off.

At first, the system worked largely as intended. In 2021 and early 2022, low interest rates made modifications especially effective: borrowers could reset rates near 3%, extend terms to 40 years, and often achieve FHA’s target 25% payment reduction.

But relief came with limits. Partial claims could not exceed 30% of the loan’s unpaid principal balance (UPB). As market conditions shifted, that cap exposed vulnerabilities in the FHA’s policy and opened a door to what Comiskey called the “partial claim game.”

By mid-2022, market rates had more than doubled from the prior year. FHA loss mitigation policy, however, requires loan modifications to reset at current market rates — specifically, the Freddie Mac PMMS rate plus 25- to 50-basis-points. As a result, borrowers who had struggled to make payments at 3% were often modified into loans at 6.5%, 7%, or higher.

Instead of relief, many received a higher interest rate and a larger monthly payment.

To offset that increase, servicers would use partial claim funds to reduce the loan balance enough to make the payment qualify. But in those high-rate modifications, Comiskey found, a borrower’s partial claim funds could dry up quickly just trying to produce a modest payment reduction. Even then, many borrowers did not reach FHA’s 25% payment-reduction target.

If a borrower had $10,000 in missed payments and $300,000 left on the loan, the servicer might use another $70,000 in partial claim funds to lower the balance to $220,000 just to get the payment low enough to qualify. The borrower signs on, likely thinking it is the best available option. But now nearly the entire partial claim allowance is gone, and the borrower is still paying a much higher rate than before. If they fall behind again, there is no cushion left.

“They basically raised the interest rate sometimes by three [or] three and a half points,” Comiskey said. “Now the borrower has nothing — the partial claim budget is gone.”

Although servicers were reimbursed for certain loss mitigation actions, the post-COVID waterfall effectively handcuffed them to a cycle of repeated partial claims and modifications that often worsened outcomes for borrowers.

“The waterfall effectively commands this,” Comiskey said. “I mean, servicers can’t not do loss mitigation the way that the FHA was specifying.”

He referred to the letter signed by more than 20 state attorneys general in 2021 “chastising servicers for not following the permissive procedures,” he said. That was six months after new loan modification guidelines were introduced.

So borrowers adapted.

Instead of taking a modification that raised their rate, many borrowers realized it was safer to cycle through standalone partial claims instead.

Partial claims didn’t change the loan’s interest rate, nor require proof of income, and they wiped the slate clean every time the borrower fell a few months behind. Miss three payments, attest you can pay again and the servicer will bring you current. Repeat.

“The only required substantiation that the borrower is actually financially able or willing to resume the mortgage payment is that the borrower attests … ‘Yeah, sure I can make the mortgage payment now, bring me current,’” Comiskey said. “Even if they never actually make a mortgage payment.”

The system allowed it because partial claims were easier to approve than mods, less painful for borrowers in the short term, and still generated incentive fees for servicers. Meanwhile, the FHA kept covering missed payments, effectively floating the loan while performance quietly deteriorated underneath.

High rates did not just make loss mitigation harder; they made repeated partial claims use the path of least resistance. “The tragedy of it,” Comiskey said, “is that if the borrower answered honestly, ‘No, I can’t resume my mortgage payment,’ then they were shifted down [the modification] path.” But he said if they lied, “‘Yeah, sure I can,’ even though having no intention of doing it, then they would have been in a much better position.”

The waterfall left thousands of borrowers receiving multiple partial claims without ever sustaining a consistent stretch of payments. Looking at Ginnie Mae MBS data, Comiskey found that nearly 48,000 loans had received three or more partial claims. Fourteen loans had received 10 or more.

“It’s like mortgage stimmies on repeat,” Comiskey said. One loan, in particular, looked stuck on a broken record, erasing its delinquency with a partial claim every three months, like clockwork.

By the time rates stabilized, tens of thousands of FHA loans had already been trained to use partial claims as a revolving line of mortgage relief.

Underwriting Standards

Equity Prime Mortgage (EPM) CEO Eddy Perez also acknowledged that the FHA loss mitigation waterfall motivated borrowers to abuse partial claims.

“Some of the customers are strategically doing it,” he claimed. “The game has kind of been taught. There are people out there coaching these people on how to play the system, and that’s just a reality.”

EPM had the highest compare ratio in the nation, reaching 421% as of January 2026, according to HUD’s FHA Neighborhood Watch List. That means FHA loans from EPM show up as seriously delinquent or claim-terminated at more than four times the national benchmark rate.

Asked about the underlying causes, Perez said COVID had an impact, “but not for direct reasons.”

Instead, he pointed to post-close cost pressures and borrower leverage issues, particularly in Florida, where rising taxes and insurance have driven sharp escrow increases. He also cited new-construction payment shock, when taxes are reassessed after the first year and monthly obligations jump.

“When they’re improved, that skyrockets,” Perez said of new construction loans. “All of a sudden you add $500 or $700 to a payment to make up for the shortfall, that puts people into some predicaments.”

Macro-level inflation, insurance increases, and other payment shocks could explain the overall rises in FHA serious delinquencies, but it doesn’t fully account for EPM’s compare ratio. HUD’s data shows EPM is an outlier among all FHA lenders, suggesting that something beyond broad economic pressure is affecting the company.

Perez attributed much of the breakdown to underwriting failures within his own organization, arguing that systemic lapses in accountability allowed risk to slip through the process.

“I think a lot of underwriters got too used to AUS,” Perez said, referring to automated underwriting systems. “They’re not held to any standard. Your company just needs to sponsor you and pay the fee.”

Speaking about his own underwriters, he added, “I don’t think they care.”

Perez went further, calling for systemic transparency. “I would love if HUD had the database to label who the underwriter was that has higher defaults.”

Little Margin For Error

But mortgage servicing veteran Schmidt argues that the underwriting problem is bigger than individual underwriters. In her view, FHA’s credit box has expanded aggressively in recent years, particularly through debt-to-income ratios that leave borrowers with little margin for error.

FHA’s standard debt-to-income guidelines is a 31% front-end ratio for housing costs and a 43% back-end ratio for all recurring debts. However, many lenders approve higher back-end DTIs, sometimes approaching 57% when strong compensating factors are present and an AUS agrees the overall risk remains manageable.

Average DTIs have increased over the years, reaching 44% in 2024, while the fraction of FHA loans with DTIs above 50% have tripled. Schmidt pointed to MIAC Analytics data showing that in the past three years, 29% of all FHA loans had a 50% DTI or higher. At that level, routine household disruptions can easily become mortgage-threatening shocks.

Looking back on her first homebuying experience, Schmidt guessed her DTI was about 28%. “If I fell behind because my furnace broke down, I went on a repayment plan to catch up on my arrears,” she said. “When you’ve got somebody to 50% DTI, you could have a tree branch fall on your car and you have to pay the deductible — now you can’t pay your mortgage.”

Even minor financial disruptions become destabilizing when half of gross income is already committed to housing.

Schmidt said state housing finance agencies tend to limit that exposure with overlays. “They won’t push these loans through the system,” she said. “They know all it does is set somebody up to fail, and they’re about maintaining home ownership in their state.”

From the servicing side, Schmidt framed the downstream consequence as unavoidable pipeline pressure. But on the originator side, she acknowledged that it’s difficult to impose restraint in a production environment. “It’s hard to tell a loan officer who could get a loan passed that they shouldn’t, and that’s where the rub comes in.”

Schmidt said she believes the fix needs to come from tighter constraints upstream: “I would prefer to see it from FHA themselves to say we’re not allowing these loans to go through anymore.”

Liquidity Test For Ginnie Mae Servicers

FHA delinquency trends are often framed as a borrower distress story. But the consequences run deeper into the plumbing of the mortgage system.

Behind every FHA mortgage sits a Ginnie Mae security, and behind every security sits a mortgage servicer responsible for keeping payments flowing to investors, even when borrowers stop paying.

That obligation is what could turn rising FHA delinquencies into a liquidity challenge for nonbank mortgage companies that dominate Ginnie Mae servicing.

When borrowers miss payments on FHA or VA loans securitized through Ginnie Mae, issuers are still required to pass through scheduled principal and interest payments to MBS investors.

To do so, servicers must use their own liquidity until the loan is resolved through modification, foreclosure, or insurance claim.

As delinquencies rise, those advances multiply.

The dynamic is drawing renewed attention as investors increasingly seek out Ginnie Mae collateral for structured mortgage deals. In its January 2026 Global Markets Analysis Report, Ginnie Mae said demand for specified pools of its securities — particularly those backed by FHA loans — is climbing as institutions search for collateral to build collateralized mortgage obligations (CMOs).

In other words, the same FHA loans showing signs of growing distress in servicing portfolios are also becoming increasingly valuable building blocks in the structured mortgage market.

That creates an unusual tension in the system.

From an investor perspective, Ginnie Mae securities remain among the safest instruments in housing finance because they carry the full faith and credit guarantee of the U.S. government. Credit losses are absorbed by federal insurance programs rather than MBS investors.

But that guarantee does not shield servicers from the operational strain of delinquent loans.

Servicers must continue advancing principal and interest payments, managing loss mitigation reviews, and navigating foreclosure timelines that can stretch months or years. If loans reach 90 days delinquent, issuers also have the option — and sometimes the necessity — to buy them out of securities pools at par, a move that can require hundreds of thousands of dollars per mortgage.

In a rising delinquency environment, those obligations can quickly become a liquidity drain.

The risk is particularly concentrated among nonbank mortgage companies, which now service the majority of Ginnie Mae loans. Unlike depository institutions, nonbanks rely heavily on warehouse lines, servicing advance facilities, and capital markets funding rather than stable deposit bases.

That funding structure can amplify pressure when delinquency rates climb.

Servicing veteran Schmidt said the industry may soon face exactly that scenario as FHA loss mitigation programs begin to run out of room.

“You can’t train somebody quickly to respond to what’s coming,” she said. “It’s sheer volume.”

For now, the FHA insurance fund remains well capitalized and the broader mortgage market remains stable. But the pipeline forming inside servicing portfolios suggests that the next stress test for the mortgage industry is liquidity — specifically, the ability of nonbank servicers to carry the growing weight of delinquent FHA loans flowing through the Ginnie Mae system.