Falling home prices in many markets have left nearly 1 million Americans underwater on their mortgages, and lenders initiated foreclosure proceedings on 103,000 homes in the third quarter — a 23 percent jump from a year ago — according to the latest numbers from ICE Mortgage Technology.
“The vast majority of borrowers remain current on their mortgage payments,” with delinquency rates and foreclosure starts and sales remaining well below pre-pandemic levels, ICE’s November 2025 Mortgage Monitor noted.
But nationwide, 875,000 homeowners with mortgages are underwater, meaning they owe more than their house is worth. Homeowners who are underwater are more likely to end up in foreclosure if they have trouble making their mortgage payments because they can’t pay off their loan by selling their home unless their lender agrees to a short sale.
At 1.6 percent, the U.S. negative equity rate is the highest it’s been in three years. That’s not setting off alarm bells yet — the negative equity rate soared above 20 percent during and after the Great Recession of 2007-2009.
Thanks to the run-up in home prices during the pandemic, the negative equity rate had been running well below its historical average, which it’s now returned to.
Markets where prices have stayed firm and homebuyers made larger down payments — including San Jose, Los Angeles, Boston and New York City still “have virtually no negative equity,” ICE reported
But the report revealed some hot spots in Texas, Florida and Louisiana with “very high” negative equity rates above 5 percent.
Where borrowers are ‘underwater’
Source: ICE Mortgage Monitor report, November 2025.
“While overall negative equity rates remain low, certain markets are showing signs of concern, particularly in the Gulf Coast of Florida and Austin, Texas,” ICE reported.
Prices in Cape Coral, Florida, are down 15 percent from peak, leaving 11 percent of homes with mortgages underwater, ICE data show.
The 21 percent decline in home prices in Austin, Texas, has left 7 percent of borrowers owing more than their homes are worth.
The 23 percent jump in Q3 foreclosure starts brought the total number of homes in active foreclosure to 222,000, an 18 percent increase from a year ago.
Foreclosure activity is trending higher from record lows, driven largely by the expiration of COVID-era moratoriums that, until last year, prohibited lenders from foreclosing on FHA borrowers.
FHA loans accounted for about half of the annual rise in foreclosure starts, and 80 percent of the rise in homes in active foreclosure, ICE reported.
FHA, VA loans driving foreclosure growth
Source: ICE Mortgage Monitor report, November 2025.
FHA loans now account for 38 percent of active foreclosures, and the resumption of VA foreclosure activity following last year’s moratorium “is largely responsible for the remainder of the recent growth,” ICE reported.
Foreclosure inventory for portfolio-held loans and GSE mortgages (loans backed by Fannie Mae and Freddie Mac) are largely flat from a year ago.
Although foreclosure sales remain near historic lows — the 21,000 foreclosure sales tallied in Q3 represented about half of 2019 levels — more FHA loans that are 90 or more days late are expected to end up in foreclosure this fall.
More than half of the 15 markets with the highest foreclosure rates are in Florida and New York, which each have four markets on the list. Louisiana and Ohio each contributed two cities to the list.
15 markets with the highest foreclosure rates
- Baton Rouge, Louisiana (1.1 percent)
- New Orleans, Louisiana (0.96 percent)
- Syracuse, New York (0.92 percent)
- Lakeland, Florida (0.9 percent)
- Albany, New York (0.88 percent)
- Youngstown, Ohio (0.83 percent)
- Columbia, South Carolina (0.73 percent)
- Deltona, Florida (0.72 percent)
- Jacksonville, Florida (0.69 percent)
- Scranton, Pennsylvania (0.69 percent)
- New York, New York (0.67 percent)
- Rochester, New York (0.66 percent)
- Cleveland, Ohio (0.64 percent)
- Honolulu, Hawaii (0.63 percent)
- Tampa, Florida (0.63 percent)
The high foreclosure rates in several New York markets are due in part to the state’s lengthy judicial foreclosure process, ICE noted. Foreclosure rates in New York markets are actually down or flat from last year.
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