The Real Reason Some Homeowners Aren’t Paying Their Mortgages

The Real Reason Some Homeowners Aren’t Paying Their Mortgages

In 2024, the U.S. government allocated $2.6 billion toward the housing market—but this funding didn’t support new housing starts, affordable housing, or first-time buyers. It didn’t even go to investors. Instead, it went to homeowners who had stopped making their mortgage payments. That same trend appears to be continuing into 2025, with an estimated $300 to $315 million already spent as of April, according to housing data reviewed in the Wall Street Journal and analysis from independent housing researcher John Komisky.

While affordability remains one of the biggest challenges in the housing market today, we’re witnessing a less visible but significant trend—one that involves FHA-backed mortgages, loss mitigation programs, and payment deferrals that could destabilize long-term housing equity and credit health.

“Extend and Pretend” Tactics
Government interventions—particularly under the guise of pandemic-era relief—have allowed servicers to delay foreclosures by offering generous incentives. This includes partial claims, which involve the government directly paying servicers on behalf of delinquent borrowers, then adding those missed payments to the loan balance as a zero-interest second lien.

Consider this: if a borrower misses five months of $4,000 payments, that's $20,000 in arrears. Add in a 25% payment reduction over the next three years (another $36,000), and the borrower is now $56,000 deeper in debt—without ever paying interest on that added debt.

What’s more alarming? According to Wall Street Journal reporting and Komisky’s review of Ginnie Mae MBS data:

Of the 160,000 FHA loan modifications completed in the past two years, 70% are already delinquent, and 55% are seriously delinquent (90+ days past due).
Nearly 48,000 loans have received three or more partial claims, and some individual loans have been brought current 10 to 14 separate times—without the borrower ever making a consistent mortgage payment.
Why This Matters
Many of these loans—especially those repeatedly modified—are not included in national equity calculations by data firms like CoreLogic and Black Knight. That paints a distorted picture of household wealth and equity, particularly among FHA borrowers, who tend to be lower-income, first-time buyers.

According to AEI's Housing Center, 79% of FHA first-time buyers had less than one month’s worth of reserves as of 2024. Combine that with resumed student loan obligations and rising consumer costs, and it’s no surprise that a growing number of FHA loans are on the brink of failure.

Despite these trends, very few foreclosures are actually being processed. In fact, of the 52,000 FHA loans that went seriously delinquent last year, only nine resulted in foreclosure. That’s not a typo. Just nine.

This raises important questions about moral hazard, long-term housing stability, and the burden being shifted to taxpayers, future homebuyers, and the market at large. While loss mitigation is a necessary tool to protect homeowners in distress, the current structure—where servicers profit from repeated bailouts and borrowers accumulate unpayable debt—may be delaying the inevitable and worsening the fallout.

What’s Next?
The extend-and-pretend model cannot continue indefinitely. When government-backed support ends, we could see a sharp increase in defaults and foreclosures, especially in FHA-heavy, lower-income neighborhoods. If this happens, it may help restore some level of affordability—but not without widespread financial damage.

As a real estate market specialist, I believe it’s critical for both homeowners and industry professionals to stay informed and prepare. Whether you're a homeowner struggling to understand your options or an investor evaluating risk exposure, this is not the time to ignore what's happening behind the scenes.

At KW Default Solutions, we are actively monitoring these market shifts and helping clients navigate the complexities of mortgage default, equity erosion, and foreclosure prevention. Our expertise is built on decades of real estate and REO experience, and we’re here to guide both professionals and consumers through the evolving default landscape. Visit www.KWdefaultsolutions.com 

Sources:

Wall Street Journal – "Biden’s Mortgage Relief Fuels Higher Housing Prices"
John Komisky, Substack: FHA Loan and MBS Performance Analysis
American Enterprise Institute (AEI) Housing Center Data