MW Is a recession brewing? These first-time homeowners will signal it first, one economist says.

By Aarthi Swaminathan

Mark Zandi of Moody's says rising mortgage delinquencies offer one early clue about the health of the U.S. economy

"This isn't typically in lists of leading economic indicators, but it may be a proverbial canary in the coal mine in the current context. ... But if the economy is headed for trouble, it is FHA borrowers who will signal it first. And they are."

That was Mark Zandi, chief economist at Moody's Analytics, in a post on the social-media platform X on Monday.

Zandi was referring to a sharp increase in homeowners who have mortgages backed by the Federal Housing Administration missing their monthly payments.

He said that these homeowners, who are typically first-time buyers with low or moderate incomes, are facing "mounting financial stress," which could offer a read on where the U.S. economy is headed.

An increasing number of first-time homeowners who have federally-backed mortgages are missing their monthly payments, according to recent data.

More homeowners overall are missing payments, and the national delinquency rate increased by 5 basis points in February to 3.53%, according to recent data from Intercontinental Exchange $(ICE)$. A basis point is 1/100th of one percentage point.

To be sure, even though the figure is up 19 basis points from a year ago, it's still 32 basis points below where it was before the pandemic in 2020, ICE noted.

But to Zandi's point, out of the 131,000 additional mortgage delinquencies year over year, 90% were FHA loans, ICE's data showed. And that's in spite of FHA loans typically making up less than 15% of all active mortgages.

Zandi attributed homeowners' missed payments to mounting financial stress. At the same time, he also noted that since FHA loans form a smaller part of all mortgages in the U.S. as compared to conventional loans, the rise in FHA delinquencies is not likely to trigger a broader economic crash. His comments come as lower- and middle-income consumers say they're cutting back in the face of stubborn inflation and tariffs.

"Not that the financial troubles of FHA borrowers are enough to push the economy into recession. Indeed, high- and middle-income mortgage borrowers are having no trouble making their payments at this time - the gap between the FHA delinquency rate and those on Fannie and Freddie loans has never been as large," Zandi explained.

"But if the economy is headed for trouble, it is FHA borrowers who will signal it first. And they are," he added.

A February report from ICE also pointed out the sharp increase in FHA loan delinquencies.

"With FHA and VA loan delinquencies likely to serve as canaries in the coal mine for mortgage performance in this cycle, we expect this to become a growing topic of conversation in 2025," ICE's report said, referring to loans for members of the military that are backed by the Department of Veterans Affairs.

Delinquencies typically precede foreclosures. And foreclosures are also rising, as more homeowners struggle to make payments.

In February, foreclosure filings rose 5% from the previous month, according to a report by Attom, a real-estate data company. Foreclosure filings refer to homeowners who have received a default notice for missing multiple payments on their home, scheduled auctions or bank repossessions.

States with the highest foreclosure rates in February were Delaware, Illinois and Nevada, Attom said.

The company did not break out what type of loans the homeowners facing foreclosure had.

ICE reported that foreclosure starts were up 34% in February as compared to a year ago, but attributed the uptick to the end of the pause on foreclosures on loans backed by the Department of Veterans Affairs.

-Aarthi Swaminathan

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March 25, 2025 18:46 ET (22:46 GMT)

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