A new Federal Housing Administration policy requiring struggling borrowers to complete a three-month trial payment period before a loan modification is being blamed for a sharp uptick in delinquencies and a wave of foreclosures now unfolding across FHA-backed loans. Foreclosures on FHA loans rose 28% in the first quarter of 2026 compared with a year earlier, according to Attom Data, as servicers scramble to manage borrowers who exhausted pandemic-era relief after the FHA ended its pause programs on Sept. 30, 2026.
The policy shift — which also limits borrowers to one FHA modification every 24 months — took effect in February and has quickly altered how delinquencies are counted and handled. Servicers say the mandatory trial periods are exposing more borrowers as unable to sustain payments and that a reporting change tied to trial plans has pushed many loans into delinquent classifications. Joseph Gormley, president of Ginnie Mae and acting FHA commissioner, has sought to blunt the immediate impact on issuer metrics by excluding loans in FHA trial plans from delinquency counts, a move industry participants say was aimed at avoiding penalizing issuers for the spike.
“We've reached a period of exhausted loss mitigation and there's no more to give,” said Ron Malik, senior vice president of default operations at Dovenmuehle, a major subservicer. Malik warned the backlogs of borrowers moving through final trial plans will play out over the next six to 18 months as many face foreclosure, short sales or deeds-in-lieu. Ted Tozer, former president and CEO of Ginnie Mae, urged faster action on liquidations: “We need to expedite the liquidation of these properties,” he said, citing concerns about FHA’s capacity to process the volume.
The current spike is driven by a convergence of lingering pandemic-era mechanics and new economic pressures. CARES Act forbearances often deferred missed payments and fees into balloon balances that are now maturing, producing “payment shock” for homeowners. Some borrowers who used down-payment assistance programs or purchased during the price surge of 2020–22 now face negative equity or higher debt-to-income ratios, industry officials said. Rising property taxes and insurance premiums, the resumption of federal student loan payments and the growth of unsecured “buy now, pay later” borrowing have further eroded borrower capacity.
Related Recipes
Carnival urges modest swimwear and shore attire on Lifou to safeguard future port calls
CMS tightens medically frail exemption in Medicaid work requirements ahead of 2027 rollout
Graham Platner campaign rally in Bar Harbor amid new scrutiny over messages to women ahead of Maine Senate primary
Yü Group Emerges as UK Undiscovered Gem in Screen Highlighting Strong Fundamentals and Valuation Discount
Servicer liquidity is another worry. When FHA-backed borrowers go delinquent, servicers must advance principal and interest to Ginnie-backed investors; long-running advances can strain independent mortgage banks and nonbank servicers that rely on short-term funding. Tozer and others pointed to the Financial Stability Oversight Council’s 2024 findings that nonbank mortgage companies have systemic liquidity vulnerabilities. Ginnie Mae’s Pass-Through Assistance Program exists to help in temporary shortages, but servicers are expected to exhaust private financing options first.
Complicating the response is reduced capacity at HUD and FHA. Officials say the department has undergone steep staff reductions since last year — including a 13% cut and broader plans that could halve the workforce — leaving fewer employees to process labor-intensive short sales and deeds-in-lieu. “Just cleaning this backlog out could be a problem if FHA doesn't streamline its process,” Tozer said.
Trending Now
Interior Outlines 20-Hour Construction Schedule for Trump’s 250-Foot Triumphal Arch Amid Regulatory Reviews
Knicks’ slow starts persist in the Finals as Spurs’ starting unit dominates early
Lincoln Memorial Reflecting Pool Receives American Flag Blue Coating in Trump-Ordered Renovation Ahead of July 4
Graham Platner Wins Maine Democratic Nomination to Challenge Susan Collins in Pivotal Senate Race
Not everyone sees an immediate crisis. Chris Bennett, chairman of Vice Capital Markets, noted that many borrowers who closed in 2020–21 still sit on significant home-price gains that provide a cushion. But he and servicers agree the velocity of the deterioration — driven by the new trial requirement, reporting changes and the end of broad relief — marks an inflection point for the FHA book and a period of heightened risk for mortgage servicers and the housing market in the year ahead.
Continue Reading
