Federal Housing Administration (FHA) borrowers are facing a sharper path to foreclosure after the Trump administration imposed new restrictions on loss mitigation. Borrowers can now only receive one partial claim or loan modification every two years and must complete three consecutive payments to qualify for assistance. Previously, Biden-era rules allowed for repeated claims covering up to 30% of a mortgage balance with no interest on arrears.
The fallout. Foreclosure filings reached 118,727 properties in the first quarter of 2026, marking a 26% increase from the previous year. This is the highest volume of activity since 2020. FHA loans, which make up roughly 10% of all outstanding mortgages, are particularly vulnerable as 11.6% of these borrowers are currently delinquent.
Regional pressure
The spike in distress is concentrated in specific states and southern cities where housing costs have outpaced local stability:
- Indiana, South Carolina, and Florida reported the highest foreclosure rates in the country.
- Southern cities including Lakeland and Punta Gorda, Florida, led the nation in filings for municipalities with over 200,000 residents.
- A Lee County property purchased for $394,000 in 2022 recently sold via foreclosure for $270,000, significantly undercutting local market comparables.
Servicers estimate that half of all seriously delinquent FHA borrowers may fail to meet the new three-payment threshold required to avoid default. Analysts project that roughly 250,000 people could lose their homes over the next 12 to 18 months through foreclosures or short sales as the backlog of pandemic-era protections continues to clear.
While foreclosure starts are up 20% year-over-year, total activity still remains below 2019 levels for now. However, with mortgage rates holding above 6% since late 2022 and home prices remaining near historic highs, the volume of forced sales is expected to exceed pre-pandemic benchmarks as the current 18-month projection window unfolds.
