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trouble brewing in a portion of the housing market
Posted on 8/14/26 at 9:30 am
Posted on 8/14/26 at 9:30 am
from WSJ article
But if a borrower later defaults, taxpayers are on the hook. Early in the pandemic, as mortgage rates plunged, lenders competed for business by easing underwriting standards. When interest rates rose in 2022, lenders further eased their standards. This let them make mortgages to borrowers who wouldn’t have otherwise qualified based on their incomes.
By late 2022, 70% of FHA borrowers had debt-to-income ratios exceeding 43%, which is generally considered risky. That’s up from 28% in 2012 and 60% before the pandemic. As inflation started to bite, defaults increased. About 15% of FHA borrowers who took out a loan between June 2021 and March 2024 fell seriously delinquent within a year.
To prevent foreclosures, Joe Biden’s regulators used the FHA insurance fund to cover arrears of struggling borrowers and offered to reduce their monthly payments by up to 25% for three years. The reprieve reduced foreclosures, but it magnified moral hazard by encouraging lenders to make riskier loans, knowing the government would rescue borrowers.
A case in point is UWM, which expanded its FHA lending after the housing market stalled. The result: more defaults. According to FHA data, 21.5% of UWM mortgages over the last two years fell seriously delinquent within a year of origination, compared to roughly 11% of its loans in 2022 and 2023.
Remarkably, 12 mortgage lenders have even higher one-year serious delinquency rates for recent mortgages, including Ages Mortgage (27.3%), Top Flite Financial (24.5%) and Loan United (23.7%). Most of these lenders also make loans that are guaranteed by Fannie and Freddie, so the FHA data could signal problems in loans guaranteed by the two GSEs.
A sample of FHA mortgages recently reviewed by the Housing and Urban Development Department found 76% contained a defect, up from 67% in late 2024. This could reflect stepped up scrutiny by the Trump team as well as eased underwriting. Foreclosures remain low, but that’s because the FHA continues to cover missed payments for borrowers who default.
But if a borrower later defaults, taxpayers are on the hook. Early in the pandemic, as mortgage rates plunged, lenders competed for business by easing underwriting standards. When interest rates rose in 2022, lenders further eased their standards. This let them make mortgages to borrowers who wouldn’t have otherwise qualified based on their incomes.
By late 2022, 70% of FHA borrowers had debt-to-income ratios exceeding 43%, which is generally considered risky. That’s up from 28% in 2012 and 60% before the pandemic. As inflation started to bite, defaults increased. About 15% of FHA borrowers who took out a loan between June 2021 and March 2024 fell seriously delinquent within a year.
To prevent foreclosures, Joe Biden’s regulators used the FHA insurance fund to cover arrears of struggling borrowers and offered to reduce their monthly payments by up to 25% for three years. The reprieve reduced foreclosures, but it magnified moral hazard by encouraging lenders to make riskier loans, knowing the government would rescue borrowers.
A case in point is UWM, which expanded its FHA lending after the housing market stalled. The result: more defaults. According to FHA data, 21.5% of UWM mortgages over the last two years fell seriously delinquent within a year of origination, compared to roughly 11% of its loans in 2022 and 2023.
Remarkably, 12 mortgage lenders have even higher one-year serious delinquency rates for recent mortgages, including Ages Mortgage (27.3%), Top Flite Financial (24.5%) and Loan United (23.7%). Most of these lenders also make loans that are guaranteed by Fannie and Freddie, so the FHA data could signal problems in loans guaranteed by the two GSEs.
A sample of FHA mortgages recently reviewed by the Housing and Urban Development Department found 76% contained a defect, up from 67% in late 2024. This could reflect stepped up scrutiny by the Trump team as well as eased underwriting. Foreclosures remain low, but that’s because the FHA continues to cover missed payments for borrowers who default.
4
Posted on 8/14/26 at 10:01 am to hubreb
Do not help or bailout. I wonder what the demographics of said borrowers are too.
Posted on 8/14/26 at 10:24 am to hubreb
You just illuminated Stout’s bat signal.
Posted on 8/14/26 at 12:39 pm to lsuconnman
quote:yeah he's not gonna like someone working his corner
You just illuminated Stout’s bat signal.
Posted on 8/14/26 at 2:20 pm to hubreb
quote:
But if a borrower later defaults, taxpayers are on the hook
Stopped reading already. HUD maintains the Mutual Mortgage Insurance Fund (MMI Fund). All foreclosure activity HUD oversees, including making lenders whole if a borrower defaults, is funded by MMI.
MMI is funded by UFMIP and MIP and does not rely on taxpayer dollars
The fund currently has $188.9 billion in total capital reserves
A house has to be in conveyance condition for HUD to reimburse the lender. If a house does not qualify, the lender is on the hook for it and sends it REO, and any losses are written off.
Conventional loans are backed by the lender and not taxpayers
You would think WSJ could do a little research.
This post was edited on 8/14/26 at 2:25 pm
Posted on 8/14/26 at 2:47 pm to hubreb
quote:
FHA
Werent these being given out to H1B visa holders by the Biden admin thus allowing temporary visa holders to obtain 30-year mortgages?
Posted on 8/14/26 at 4:57 pm to stout
quote:If they devoted a tenth of their subscriber retention efforts to article research, the WSJ would be the most factual news service ever known to man. Instead, it's a paper supposedly for businessmen and members of Wall Street that describes the basics of options every time they're mentioned in an article as if the readers are completely ignorant.
You would think WSJ could do a little research.
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