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Q4 Update: Delinquencies, Foreclosures and REO

Industry Update
March 14, 2025

Source: CalculatedRisk Newsletter

This entire housing cycle I’ve argued that we would NOT see a surge in foreclosures that would significantly impact house prices (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.

Yesterday, CoreLogic reported the Homeowner Equity Report (HER) for the fourth quarter of 2024. Nationwide, borrower equity increased by $281.9 billion, or 1.7% year-over-year.  Past years of rapid growth have left many homeowners with a substantial accumulation of equity. This financial padding can serve as a backstop in the event of a relocation or job loss.

Quarter-over-quarter, the total number of mortgage residential properties with negative equity increased by 9.3% to 1.1 million homes or 2% of all mortgaged properties. While year-over-year, negative equity increased by 7% from 1 million homes, or 1.8% of all mortgage properties … Negative equity peaked at 26% of mortgaged residential properties in Q4 2009 based on CoreLogic equity data analysis.

With substantial equity, and low mortgage rates (mostly at a fixed rates), few homeowners will have financial difficulties even with an economic downturn.

Here is some data on REOs through Q4 2024 …

The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) was increased 6% YOY from $747 million in Q4 2023 to $790 million in Q4 2024. This is still historically extremely low.

Fannie Mae reported the number of REOs decreased to 5,895 at the end of Q4 2024, down 9% from 6,481 at the end of the previous quarter, and down 30% year-over-year from Q4 2023. Here is a graph of Fannie Real Estate Owned (REO).

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 decreased year-over-year from 0.47 percent in Q4 2023 to 0.45 percent in Q4 2024 (red) and remains historically low. Loans in forbearance are mostly in the 90-day bucket at this point, and that has declined recently.

Compared to last quarter, the seasonally adjusted mortgage delinquency rate increased for all loans outstanding. By stage, the 30-day delinquency rate decreased 9 basis points to 2.03 percent, the 60-day delinquency rate increased 3 basis points to 0.76 percent, and the 90-day delinquency bucket increased 11 basis points to 1.19 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 fourth quarter was 0.45 percent, remaining unchanged from the third quarter of 2024 and 2 basis points lower than one year ago.

Both Fannie and Freddie release serious delinquency (90+ days) data monthly. Freddie Mac reported that the Single-Family serious delinquency rate in January was 0.61%, up from 0.59% December. Freddie’s rate is up year-over-year from 0.55% in January 2024, however, this is close to the pre-pandemic level of 0.60%. Freddie’s serious delinquency rate peaked in February 2010 at 4.20% following the housing bubble and peaked at 3.17% in August 2020 during the pandemic.

Fannie Mae reported that the Single-Family serious delinquency rate in January was 0.57%, up from 0.56% in December. The serious delinquency rate is up year-over-year from 0.54% in January 2024, however, this is below the pre-pandemic lows of 0.65%. The Fannie Mae serious delinquency rate peaked in February 2010 at 5.59% following the housing bubble and peaked at 3.32% in August 2020 during the pandemic.

And on foreclosures …

ICE reported that foreclosures starts and sales have increased recently, especially for VA loans, however foreclosure sales are still down year-over-year.

Foreclosure starts jumped by 30%, sales rose by 25%, and the number of active foreclosures rose by 7% in January following expiration of a recent moratorium on VA foreclosures.

While January increases in foreclosure activity are common, starts hit their highest level in 5 years, with more than 40K loans referred to foreclosure in the month.

Compared the same time last year, foreclosure starts among FHA (-2%) and conventional (-4%) loans declined, with the annual increase being solely driven by the spike in VA referrals.

Resumption of VA foreclosures – all else the same – could result in a roughly 15% increase in 2025 foreclosure referral activity compared to 2024.

January foreclosure sales rose from December following holiday moratoriums but were down from the same time last year (-5%) even with the resumption of VA foreclosure sales.

The bottom line is 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. That doesn’t mean we won’t see price declines, especially in areas with a large number of homes for sale. And if the economy weakens, and unemployment increases, we might see more distressed sales. But that is very different than the housing bust.