Foreclosure numbers are getting more attention again, but the headline alone does not tell the whole story. What matters more is what is driving the movement underneath it, and in FHA and VA, the pressure is coming from very different places.
Donna has been warning clients about this for some time, noting that the industry should not be surprised to see heavier foreclosure activity in these programs over the next couple of years. The reason is not just economic pressures. It is the way post-COVID loss mitigation rules revealed the weaknesses of the lenient COVID streamlinedapproach.
That is the part servicers need to keep their attention on. If the available options do not actually create a sustainable payment, then the file is not really cured, it is just delayed.
Why FHA Is Building Pressure
FHA is now working through the consequences of several years of unusually permissive relief. During COVID, a borrower could often re-enter mitigation with very little friction, and that created a cycle that kept loans from moving through the normal default process. Now that the system has tightened, the backlog is coming back into view.
The result is not just more foreclosure starts. It is a growing number of borrowers who have already used the tools available to them and are now running into fewer remaining options. In that environment, trial plans and modifications matter, but only if they are truly affordable and sustainable. If they are not, the borrower ends up back in the same place.
That is the bigger operational lesson. Servicers cannot rely on yesterday’s mitigation approach to solve today’s payment problem.
Why VA Is Different, but Still Stressed
The VA picture is not the same, but it is just as important. The end of the VASP program removed a tool that had given servicers and borrowers a real payment reduction path. Without it, the alternatives are much narrower, and in a high-rate environment that means many borrowers are being asked to modify into payments even higher than the payment they defaulted on.
That is where the concern becomes especially sharp. If a borrower lost income, faced a death in the household, or hit another real-life disruption, a higher modified payment is not a solution.
For servicers, that means the question is no longer whether foreclosure pressure exists. The question is whether the file is being worked early and realistically enough to identify the right outcome before the situation hardens.
The DTI Problem Beneath It
Donna also pointed to a deeper issue that sits underneath both FHA and VA: debt-to-income ratios that leave borrowers with no cushion. If a borrower is already at 50% DTI, even a small emergency can become a mortgage payment threat quickly.
That is the part of the story that gets missed when people focus only on interest rates or foreclosure percentages. A household with no room to absorb an unexpected expense is fragile. And when you combine that with higher housing costs, insurance increases, and fewer mitigation options, the pipeline starts to build.
In Donna’s view, FHA is the only entity that can really fix that upstream problem. Loan officers and brokers can work only within the rules they are given. If the credit box stays too wide, the same issue will keep showing up later in servicing.
What Servicers Should Be Ready For
The most important takeaway is preparation.
Servicers should expect foreclosure pressure to stay elevated, especially in FHA and VA, and plan for a longer period of heavier activity. That means tightening file discipline, making earlier decisions on sustainable options, and being realistic about which loans can truly be retained. Please visit Mortgage Professional America to read the article in its entirety.