Why Are Foreclosure Rates Rising and What Does It Mean?
Uncover the reasons behind current foreclosure rate movements and their broader impact on the housing market and economy.
When a homeowner can no longer fulfill their mortgage payment obligations, the lending institution may initiate a legal process known as foreclosure. This process allows the lender to recover the outstanding loan balance, often by taking ownership of the property or selling it. Understanding the current state of foreclosure activity is important for homeowners and those observing the housing market. This article will examine how foreclosure activity is measured, analyze recent trends, and explore the broader economic factors that influence these rates.
Defining Foreclosure Metrics
Foreclosure rates measure properties in various stages of the foreclosure process. The process begins with a payment default, typically after a homeowner misses several mortgage payments (90-120 days). The lender then issues a Notice of Default (NOD), informing the borrower of the breach and initiating foreclosure. This initial notice is also called a “foreclosure start” or “Lis Pendens” in judicial foreclosure states.
If the default is not resolved, the property may proceed to a scheduled foreclosure auction or sale. This public sale aims to sell the property to the highest bidder to satisfy the debt owed to the lender. If the property does not sell at auction or if the bid is insufficient, ownership reverts to the lender, becoming a Real Estate Owned (REO) property.
Foreclosure rates are reported in several ways: total properties with any foreclosure filing, new foreclosure starts, or the percentage of all mortgaged properties experiencing a filing. Data providers like ATTOM or the Mortgage Bankers Association (MBA) collect this information from public records, government agencies, and financial institutions. Methodologies may vary, but they show similar trends in foreclosure activity.
Analyzing Current Foreclosure Trends
Foreclosure activity across the United States has shown an upward trend, though overall levels remain below historical averages. In the first quarter of 2025, 93,953 properties had foreclosure filings, including default notices, scheduled auctions, and bank repossessions. This was an 11% increase from the previous quarter, but a 2% decrease compared to the same period last year.
July 2025 data indicates a continued increase in activity. 36,128 properties nationwide had foreclosure filings, an 11% rise from June 2025 and a 13% increase year-over-year. New foreclosure proceedings, or foreclosure starts, also increased, with 24,302 properties beginning the process in July 2025, up 12% from June and 11% from a year ago.
Lender repossessions, or completed foreclosures (REOs), showed a 1% decrease from June to July 2025, with 3,866 properties repossessed. However, annually, repossessions increased by 18% in July compared to the previous year. The percentage of loans in foreclosure at the end of the second quarter of 2025 was 0.48%, down 1 basis point from the first quarter but 5 basis points higher than one year prior.
Economic Drivers of Foreclosure Activity
Economic conditions influence homeowners’ ability to meet mortgage obligations, directly impacting foreclosure rates. Unemployment rates play a substantial role, as job loss or reduced income can compromise a homeowner’s capacity to make timely mortgage payments. Without a steady income, households struggle to cover essential expenses, making mortgage payments challenging to prioritize.
Interest rates are another factor. Rising interest rates can affect mortgage affordability, particularly for new borrowers or those with adjustable-rate mortgages. While fixed-rate mortgage payments remain stable, higher rates can constrain refinancing options for homeowners seeking to lower monthly payments or access home equity during financial distress.
Inflation also contributes to financial strain on households. When the cost of everyday goods and services (groceries, fuel, utilities) increases, it can erode a household’s purchasing power. This reduction in disposable income can make it difficult for homeowners to manage budgets, potentially leading to missed mortgage payments even if their income has not decreased.
The health of the housing market, including home price appreciation or depreciation, also affects foreclosure activity. When home values decline, homeowners may find themselves with negative equity, meaning their outstanding mortgage balance is greater than the property’s market value. This situation can eliminate the option of selling the home to avoid foreclosure, as a sale would not cover the full debt. Conversely, strong home price appreciation provides homeowners with equity, offering a buffer against financial difficulties by allowing them to sell the property or refinance.