Q3 Update: Delinquencies, Foreclosures and REO
Industry Update
December 4, 2025
Source: CalculatedRisk Newsletter
Even with the recent weakness in house prices, it is important to note that there will NOT be a surge in foreclosures that could lead to cascading house price declines (as happened following the housing bubble) for two key reasons: 1) mortgage lending has been solid, and 2) most homeowners have substantial equity in their homes.
With substantial equity, and low mortgage rates (mostly at a fixed rates), few homeowners will have financial difficulties.
But it is still important to track delinquencies and foreclosures.
Here is some data on REOs through Q3 2025 …
This graph shows the nominal dollar value of Residential REO for FDIC insured institutions based on the Q3 FDIC Quarterly Banking Profile released in late November. Note: The FDIC reports the dollar value and not the total number of REOs.
The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) was up 24% YOY from $765 million in Q3 2024 to $951 million in Q3 2025. This is still historically very low, but increasing.
Fannie Mae reported the number of REOs decreased to 4,496 at the end of Q3 2025, down 4% from 4,666 at the end of the previous quarter, and down 31% year-over-year from 6,481 in Q3 2024.
This is very low and well below the pre-pandemic levels. REOs are a lagging indicator. REOs increase when borrowers struggle financially and have little or no equity, so they can’t sell their homes – as happened after the housing bubble. That will not happen this time.
Here is some data on delinquencies …
It is important to note that loans in forbearance are counted as delinquent in the various surveys but not reported to the credit agencies.
The percent of loans in the foreclosure process increased year-over-year from 0.45 percent in Q3 2024 to 0.50 percent in Q3 2025 (red) but remains historically low.
From the MBA:
Compared to last quarter, the seasonally adjusted mortgage delinquency rate increased for all loans outstanding. By stage, the 30-day delinquency rate increased 2 basis points to 2.12 percent, the 60-day delinquency rate increased 4 basis points to 0.76 percent, and the 90-day delinquency bucket remained unchanged at 1.11 percent.
The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans in the foreclosure process at the end of the third quarter was 0.50 percent, up 2 basis points from the second quarter of 2025 and 5 basis points higher than one year ago.
Both Fannie and Freddie release serious delinquency (90+ days) data monthly.
These are mortgage loans that are “three monthly payments or more past due or in foreclosure”. The pandemic related increase in serious delinquencies was very different from the increase in delinquencies following the housing bubble. Lending standards have been fairly solid over the last decade, and most of these homeowners have equity in their homes – and they have been able to restructure their loans once they were employed.
And on foreclosures …
ICE reported that active foreclosures are still very low but have increased recently. have decreased and are near the records.
There were 103K foreclosure starts in Q3 2025, a 23% increase from the same period last year, but 18% below Q3 2019’s pre-pandemic levels with FHA loans accounting for 44% of foreclosure starts in Q3.
The number of loans in active foreclosure rose modestly year-over-year (18%), yet overall foreclosure volume remains historically low, with Q3 foreclosure sales (21K) at roughly half of 2019 levels.
FHA loans account for the majority of that rise, making up 38% of active foreclosures, roughly half of the annual rise in foreclosure starts and 80% of the rise in active foreclosures.
The resumption of VA foreclosure activity following last year’s moratorium is largely responsible for the remainder of the recent growth, with foreclosure inventory for portfolio-held loans and GSE mortgages largely flat year over year.
The bottom line is there will likely be an increase in delinquencies and foreclosures, but there will not be a huge wave of foreclosures as happened following the housing bubble. The distressed sales during the housing bust led to cascading price declines, and that will not happen this time.
For full report, please click the source link above.
