The Foreclosure Wave Is Here: Pandemic-Era Forbearance Has Finally Run Out
Published: September 2, 2025 | By Mariusz Kurylo
At the peak of the COVID-19 pandemic in mid-2020, approximately 8.5 million U.S. mortgage borrowers were in forbearance — a federally-mandated pause in mortgage payments that allowed households facing job losses and income disruption to defer payments without facing foreclosure. The forbearance program was one of the most sweeping mortgage interventions in U.S. history, preventing a foreclosure cascade that could have amplified the pandemic recession into a housing crisis. But forbearance was always temporary, and the consequences of the debts deferred, restructured, and stretched during the pandemic years have now arrived in full.
By late summer 2025, foreclosure activity across the United States had risen to its highest levels since 2014, according to ATTOM Data Solutions figures reported by Reuters. Foreclosure starts — the initial filing that begins the legal process — were running at approximately 35,000 per month nationally, up from a COVID-era low of approximately 6,000 per month during the 2021 forbearance period. While well below the catastrophic peak of 2009–2010 (when monthly starts exceeded 300,000 at the height of the financial crisis foreclosure wave), the trend was unmistakably upward and showed no sign of reversing.
The demographics of the 2025 foreclosure cohort differed from the 2008–2010 wave in important ways. The 2008 crisis was driven primarily by subprime mortgages — loans to borrowers with weak credit who had been given access to home financing on terms they could not sustain. The 2025 foreclosure activity was more concentrated among FHA and VA borrowers — government-backed loans that serve first-time buyers and veterans — who had received forbearance but ultimately could not catch up on deferred payments as living costs rose and the temporary support programs expired. Bloomberg described it as "a slower-moving crisis affecting a more sympathetic borrower population."
The Forbearance-to-Foreclosure Pipeline
To understand the foreclosure wave, it is necessary to understand the path that borrowers traveled from the peak forbearance period of 2020 to the foreclosure filings of 2025. When the federal CARES Act forbearance protections expired and servicers began working through their books of deferred payment borrowers, the dominant resolution was loan modification — typically an extension of the loan term, reduction of the monthly payment, or addition of the deferred amount to the loan balance as a "COVID-19 deferral" that would be due at sale or payoff.
These modifications were successful for most borrowers: CNBC reported that approximately 85% of borrowers who exited forbearance successfully maintained payments through 2022 and 2023. But the remaining 15% — approximately 1.2 million loans — proved problematic. Some borrowers re-entered delinquency after modification as rising living costs (food, energy, insurance) depleted household budgets. Others had taken on additional debt during the pandemic (auto loans, credit cards) that collectively made the modified mortgage unsustainable. A subset had underlying property value or income problems that no modification could permanently address.
Wall Street Journal analysis of Mortgage Bankers Association data showed that the serious delinquency rate (90+ days) for FHA loans — which serve lower-income, first-time buyers — was running at approximately 3.8% in mid-2025, more than double the pre-pandemic rate and significantly above the comparable serious delinquency rate for conventional loans (approximately 0.9%). FHA loans were originating foreclosures at a rate disproportionate to their share of the outstanding mortgage market, a pattern that Moody's Analytics documented in a widely-cited research report.
Geographic Hotspots: The Sun Belt Correction
The geographic distribution of 2025 foreclosure activity was concentrated in markets that had experienced the most extreme price appreciation during the pandemic migration wave — the Sun Belt markets of Florida, Arizona, Nevada, Texas, and Georgia. In these markets, the coincidence of overextended buyers (who stretched to purchase at peak prices with minimal equity), market price corrections (undermining refinancing options), and economic stress (rising insurance and property tax costs, particularly in Florida) created a foreclosure-prone environment.
Reuters reported that Miami-Dade County, Broward County, and Palm Beach County in Florida showed foreclosure filings running at three to four times their pre-pandemic rates by mid-2025, driven in part by a separate but related crisis: homeowners insurance costs in Florida had exploded as major carriers exited the state, leaving policies through the state-backed Citizens Property Insurance — often at two to three times the prior cost — or forcing homeowners to go uninsured and thereby violating mortgage terms. Mortgage servicers were required by loan documents to force-place insurance when homeowners let policies lapse, adding $200–500 per month to mortgage costs for thousands of already-strained borrowers.
Bloomberg's mapping of foreclosure activity in the Phoenix, Arizona metro showed similar patterns: neighborhoods that had seen the most rapid appreciation in 2020–2022 and had attracted first-time buyers at peak prices were showing the highest 2025 foreclosure concentrations. For these borrowers, an entry-level home purchased for $385,000 in late 2021 might now appraise at $345,000, eliminating equity and making it impossible to refinance or sell without bringing cash to closing — an option unavailable to most first-time buyers.
What Foreclosure Volume Does to Home Prices
The macroeconomic question is whether the 2025 foreclosure uptick would remain a contained correction or trigger the self-reinforcing price decline cycle that characterized 2008–2012. The dynamics are different this time in ways that both alarm and reassure.
The alarm comes from the concentration risk: the same Sun Belt markets where foreclosures are most active also have the highest levels of investor-owned short-term rentals being converted back to for-sale inventory, homebuilder cancellations adding to supply, and buyer affordability stress suppressing demand. When multiple supply-side factors hit a market simultaneously, price declines can be sharper than the volume of foreclosures alone would suggest.
The reassurance comes from overall inventory levels and equity positions. As Financial Times reported, the majority of current homeowners — even those who purchased in 2021–2022 — still have positive equity nationally (though less so in the highest-appreciation markets). The absence of large-scale negative equity means that most sellers can sell at a price above their loan balance, creating an orderly transition rather than a foreclosure cascade. Nationwide negative equity would require a national price decline of approximately 25% from current levels, which current fundamentals do not suggest is imminent.
CNBC quoted housing economists who described the 2025 situation as "a significant but manageable correction" in the most overheated markets, rather than a systemic housing crisis. That assessment was not universally shared, however — several Wall Street researchers noted that the same "manageable correction" language had been used in 2006 and 2007 to describe early warning signs of what became a far more serious disruption.
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Sources: Bloomberg, Reuters, The Wall Street Journal, Zillow Research, National Association of Realtors, CNBC
Disclaimer: This article is for informational and educational purposes only. It does not constitute financial, legal, or investment advice.