Mortgage servicers and capital markets participants are constantly monitoring for shifting dynamics in mortgage performance and household stress. This vigilance is not just par for the course in prudently managing risk - it can be pivotal in limiting financial exposure as signs of deteriorating credit conditions emerge. The value of this approach is being demonstrated once again in late 2025, as ICE mortgage data shows clear signs of an isolated rise in delinquencies among a key sector of the market.

Federal Housing Administration (FHA) loans often act as a leading indicator of burgeoning risk in the mortgage market because of their unique profile. FHA loans tend to have higher loan-to-value (LTV) ratios, are typically issued to borrowers with lower credit scores, and are skewed toward first-time homebuyers. Even under normal market conditions, FHA loans tend to be more stress-prone than conventional conforming mortgages or bank-held portfolios—and that’s even more pronounced in today’s market, where these loans account for a record 44% of low credit score loans, up from 11% back in 2006. FHA also accounts for more than half of serious delinquencies across the country. That propensity to serve as a harbinger of mounting borrower stress appears to be bearing out once again as ICE data now reveals that delinquency rates among FHA loans have been steadily rising over the past two years.

A key consideration for servicers and secondary market participants is that this isolated rise in FHA loan delinquency rates coincides with two complicating factors, First, the U.S. labor market is showing signs of softening, potentially applying further pressure on already-stressed homeowners. Second, mandatory payments on federal student loans resumed in May after a five-year pause, levying an additional debt burden on younger first-time buyers more likely to be carrying outstanding balances from college. Analysis of ICE McDash data and ICE Tradelines data powered by TransUnion shows that nearly 20% of mortgage holders also carry student loan debt. Among FHA borrowers, that number rises to nearly 30%, and data shows that borrowers delinquent on student loans are up to four times more likely to be delinquent on their mortgage.

While an overall slowdown in home price growth across the U.S. may be providing modest affordability improvement, ICE data is also beginning to show localized pockets of homebuyers becoming financially strained. Places like the Gulf Coast of Florida have seen a combination of recent natural disasters and rising property insurance costs, which has been resulting in elevated delinquency rates in the same areas where home prices have begun to pull back from their recent highs. Those negative equity rates grow deeper among FHA loans specifically, with ICE Mortgage Monitor data showing nearly 70% of 2023 and 2024 vintage FHA loans in Cape Coral, 65% of 2022 vintage FHA loans in Austin and 57% of 2023 vintage FHA loans in North Port currently underwater.

For portfolio managers and servicers this means rising potential for risk, not only in certain slices of the market but among individual loan customers. One of the biggest costs any servicer can face is managing a seriously delinquent loan or household, with direct costs including advancing funds on loans to make MBS payments, working to connect the household with assistance programs, and managing significant regulatory compliance around how employees engage with them.

This is challenging enough on its own. But starting October 1, 2025, FHA loss mitigation guidelines are changing, which could impact servicing practices and costs entering Q4. Because of this shift, servicers will no longer be able to rely wholly on the current loss mitigation workflows if their customers need assistance. So, as risk is rising, servicers must contend with changing regulatory guidelines that require them to make critical adjustments to loss mitigation workflows.

ICE’s rich data sets including McDash, public records, and more, means we can help servicers better understand the risk in their portfolios sooner. Integrations between the MSP® loan servicing system and other ICE servicing products help make loss mitigation waterfalls more efficient, while API integrations with Freddie Mac and Fannie Mae automate receipt of GSE decisions and settlement.

As we see early signs of risk building within specific markets and specific borrower populations — such as FHA borrowers, borrowers with limited equity or those behind on student loans — proactive monitoring and data-driven risk management become essential. Identifying and engaging these borrowers early and understanding how to manage risk at the portfolio level may help servicers and capital markets participants prevent hardship later.