The national mortgage delinquency rate edged lower in the second quarter, but the improvement at the front end of the pipeline masked mounting stress among borrowers who have fallen further behind, particularly those with Federal Housing Administration-insured loans.
The seasonally adjusted delinquency rate for mortgages on one- to four-unit residential properties fell to 4.37% of outstanding loans at the end of the second quarter, according to the Mortgage Bankers Association’s National Delinquency Survey.
That was down 7 basis points from the first quarter but 44 basis points higher than a year earlier.
The more consequential movement occurred deeper in the delinquency pipeline. The share of loans that were at least 90 days past due or already in foreclosure rose for the fourth consecutive quarter, reaching 2.06%. That seriously delinquent rate increased 3 basis points from the previous quarter and 49 basis points from a year ago.
FHA loans showed the sharpest deterioration. Although the seasonally adjusted FHA delinquency rate declined 9 basis points during the quarter to 11.79%, it remained 122 basis points above its year-earlier level. FHA serious delinquencies increased 227 basis points year over year.
“Mortgage delinquencies decreased slightly across all loan types in the second quarter of 2026,” said Marina Walsh, CMB, MBA’s vice president of industry analysis. “Nonetheless, the broader trend is that both delinquencies and foreclosures have increased over the past year.”
A Quarterly Decline With A Timing Effect
Donna Schmidt, president and CEO of DLS Servicing, said some of the second-quarter improvement may reflect the timing of FHA loss-mitigation trial payment plans rather than a broad improvement in borrowers’ finances.
“Part of the decrease in delinquencies for the second quarter is that the FHA new waterfall trial payment plans were at full maturity, meaning that elevated delinquency rates we saw beginning in October 2025, as a result of all loss-mitigation loans being put on TPP, were finally balancing out,” Schmidt said.
Borrowers approved for loss mitigation in October or November would not have been brought current until March or April, after completing three trial payments, she explained. It would then take several more months for the usual post-trial reinstatement cycle to resume.
Seasonality may also have helped lower early-stage delinquencies. Based on 15 years of DLS Servicing data, Schmidt said loss-mitigation applications typically decline during the second quarter, which she attributed partly to income tax refunds and reduced spending following the holidays.
Applications generally begin rising modestly in July before spiking from September through the end of the year as households absorb back-to-school, winter, and holiday expenses, she said.
That pattern suggests the second-quarter decline may not carry through the remainder of 2026.
Foreclosure Inventory Keeps Rising
Foreclosure inventory increased to 0.67% of outstanding loans, up 3 basis points from the first quarter and 19 basis points from a year ago. However, foreclosure starts declined 4 basis points during the quarter to 0.20%.
Schmidt said changes to FHA’s loss-mitigation requirements may be pushing some borrowers to confront whether they can sustainably afford their homes.
“Some of the improvement may be credited to the return to more responsible loss-mitigation requirements” following pandemic-era leniency, Schmidt said. Borrowers who have exhausted their options or no longer qualify for a payment-reducing solution may instead decide to sell a property they have struggled to afford, she added.
NMP previously reported that repeat defaults, depleted partial-claim capacity, and higher modification rates were creating a growing liquidity squeeze for FHA servicers. Schmidt warned earlier this year that foreclosures would begin increasing in the second quarter and continue rising over the following year.
The latest MBA data shows that movement is underway, even though foreclosure starts declined during the quarter. More loans remain trapped in serious delinquency or the foreclosure process, increasing the time and capital servicers must devote to unresolved defaults.
Government-Backed Loans Show More Stress
Delinquencies declined quarter over quarter across all major loan types. The conventional delinquency rate fell 3 basis points to 2.72%, while VA delinquencies declined 10 basis points to 4.89%.
All three categories, however, worsened from a year earlier. Conventional delinquencies increased 12 basis points, compared with increases of 122 basis points for FHA loans and 57 basis points for VA loans.
The difference was even wider among seriously delinquent loans. Compared with the second quarter of 2025, the serious delinquency rate rose just 6 basis points for conventional mortgages, versus 227 basis points for FHA loans and 31 basis points for VA loans.
Pennymac recently became the first large servicer to give distressed veteran borrowers early access to the VA’s new loss-mitigation waterfall and partial-claim option. All VA servicers must implement the new system by Nov. 28.
MBA also pointed to weakness in the labor market, rising delinquencies on other forms of consumer debt, stretched housing affordability, and slower home-equity accumulation as potential signs of greater homeowner distress.
For lenders and originators, the second-quarter headline offers little room for complacency. Fewer borrowers became newly delinquent, but a growing share of those already in trouble failed to recover, with FHA borrowers increasingly concentrated at the most serious end of the pipeline.
