12-Month Outlook (What it Means for Real Estate Investors)
By: Loreal Loftus
1) “Moratoriums ending”
- The big pandemic-era protections are mostly gone. FHA’s special COVID recovery options were extended through Apr 30, 2025 and are now sunset, while FHA’s new, permanent tools (like the Payment Supplement) take over. Expect a more normal flow of defaults as temporary protections fade, partly offset by these new workout tools.
2) FHA “issues” (loss-mit, delinquencies, policy changes)
- FHA rolled out the Payment Supplement (lets servicers use a HUD-backed second to temporarily reduce the principal portion of the payment for 36 months) and ordered servicers to implement it by Jan 1, 2025. FHA also issued 2025 updates tightening and clarifying permanent loss-mit options. Net effect: more borrowers get saved, but some will still roll into sale/foreclosure.
- FHA delinquency is elevated versus conventional (Q2 2025 FHA delinquency ~10.57%), so distress skews FHA in many markets.
3) Maxed credit cards / consumer strain
- Household debt is at new highs; credit-card balances ~$1.21T and delinquencies have been rising broadly. This pressure spills into housing budgets, boosting motivated-seller conversations (pre-foreclosure, divorce, relocations).
4) Silent second mortgages
- “Silent seconds” (undisclosed seller/3rd-party seconds to fund down payments) are explicitly prohibited; loans with undisclosed contributions (including “silent seconds”) are not eligible for sale to the GSEs. For investors, this is a hard red flag—don’t touch deals with undisclosed subordinate financing.
5) Mortgage workout loans (mods, supplements)
- Expect more workouts and fewer forced sales than in past cycles because servicers now have permanent toolkits (e.g., Payment Supplement, streamlined mods). That slows the pace of distressed inventory hitting MLS—even as filings rise.
6) Foreclosures & filings trend
- Foreclosure activity has been ticking up: mid-2025 filings up ~5.8% y/y, and July 2025 marked the highest month of the year (+13% y/y). That points to a gradual build in opportunities (pre-sale workouts, auction, post-sale REO).
How to play it (actionable moves)
- Pre-foreclosure & FHA focus
- Target FHA-backed sellers who didn’t get full relief (post-April 2025 sunsets). Offer subject-to, rate/term takeovers, or cash with quick close. Know the Payment Supplement mechanics so you can propose clean exits.
- Underwriting
- Assume flat prices, modest DOM, and buyer payment sensitivity. Stress-test with higher carrying costs (insurance, taxes, repairs) and no rent pop.
- Deal sourcing
- Work the notice/filings lists and 90+ DOM MLS inventory; pair with credit-stress signals (cards, autos) in your farming ZIPs. Use empathetic seller scripts tied to budget pressure.
- Legal/Compliance
- Require full Closing Disclosure + Lien/Title searches to avoid hidden seconds. If down-payment assistance is involved, make sure it’s properly disclosed and program-compliant. Silent seconds = walk away.
- Exit timing
- Workout tools slow the flow of foreclosures, so expect a steady trickle, not a flood. Line up multiple exits (wholetail, rental, wholesale to FHA-buyer with concessions).
Bottom line
- Consumer strain + elevated FHA delinquency + rising filings = more motivated sellers, but loss-mit tools will meter how fast distress hits the market. The winners will (1) know FHA’s new rules, (2) stay squeaky-clean on financing (no “silent seconds”), and (3) solve payment problems with creative, compliant offers.