Mba: Economic Growth Steady In 2025, But Fha Delinquencies Rose

The U.S. economy is set to post solid growth even as cracks form beneath the surface for lower-income households and Federal Housing Administration (FHA) borrowers, according to Mortgage Bankers Association (MBA) economists Joel Kan and Marina Walsh during a market update at the association’s annual Servicing Solutions Conference this week.

Kan, MBA’s vice president and deputy chief economist, offered a macro overview of the market and noted that the MBA expects real U.S. economic growth of about 2.5% in 2025.

“That’s still pretty strong,” Kan said, noting that a robust middle of the year is offset by a softer but still positive fourth quarter. “We’re coming off 2025 with some momentum.”

Kan said consumer spending, which is roughly two-thirds of U.S. economic activity, remains the primary growth engine into 2026, supported by a job market that is softening but not collapsing. He said much of that spending is being driven by households with “more liquid assets, more cash, equity and wealth.”

But the picture is far from uniform, Kan said. Data from the Federal Reserve Bank of New York show student loan and auto loan balances at record highs, while credit card balances have climbed to about $1.2 trillion. Delinquencies, particularly on credit cards, are also rising, with 90-day-plus late-payment rates for credit cards more than 12% higher than in prior years.

“Consumers are driving a lot of growth, but there are some signs of weakness for certain parts of the economy,” Kan said, adding that these pressures could spill over into housing and mortgage performance.

The labor market, meanwhile, is cooling from earlier peaks. In 2025, the economy added about 15,000 jobs per month, down sharply from 120,000 per month in 2024. The unemployment rate stands at 4.3%, while a broader underemployment gauge is higher. About 25% of unemployed workers have been out of work for more than six months, complicating their ability to keep up with mortgage payments.

Younger workers have been hit especially hard. Unemployment for college-educated workers ages 20 to 24 has risen, making it tougher for recent graduates to form households and enter the housing market.

Inflation has eased from 9% at its peak to 2.4%, according to the Consumer Price Index, but h it remains above the Federal Reserve’s preferred 2% level, Kan said. He also said that the impact of tariffs has been lower than expected.

With inflation moderating and unemployment above 4%, the Fed has already cut rates three times in its past four meetings and is now in a wait-and-see stance, Kan said. He added that the MBA expects one more rate cut between now and second-quarter 2026, but incoming labor and inflation data will dictate the pace.

Walsh, the trade group’s vice president of industry analysis, said mortgage performance remains relatively strong overall. But it’s showing growing stress in certain segments, especially in FHA portfolios, where serious delinquencies are at their highest rates — excluding the COVID-19 pandemic — since 2011 and 2012.

MBA’s National Delinquency Survey shows the overall delinquency rate at 4.26%, Walsh said, which is about 100 basis points (bps) below the historical average. But performance varies sharply by product.

“If you were to take out COVID and pretend it never happened, and look at the delinquency rates over time, you have to go back to around 2011 or 2012 to see [FHA] at this level,” Walsh said.

FHA serious delinquencies, which are loans 90 days or more past due or in foreclosure, have risen significantly and now sit nearly 900 bps above conventional loans. Early-stage FHA delinquencies have leveled off, but serious delinquencies are up about 75 bps from a year earlier.

Walsh cited changes to FHA’s loss-mitigation waterfall, uneven labor market conditions and stretched affordability as contributing factors. Loans originated in 2020 and 2021 are performing relatively well, while 2018–2019 and 2022–2023 vintages show higher stress.

Forbearance levels remain far below the pandemic peak of 4.3 million loans but have not disappeared. Ginnie Mae loans carry a forbearance rate of about 1.2%, largely tied to economic hardship.

“The question is, are these hardships truly temporary or not, or is this just a pause to breathe before the inevitable?” Walsh said.

Roughly 30% to 35% of current loan workouts involve borrowers who previously received assistance, signaling vulnerability in parts of servicing portfolios. Rising property taxes and insurance premiums have added pressure, often compounding other financial strains.

Servicing, meanwhile, remains a key profit driver, particularly for independent mortgage banks (IMBs). Nondepositories now account for about 73% of the top 25 agency servicers. About 85% of IMBs are profitable, a share that would fall to roughly 75% without accounting for servicing income.