Excerpts below. Full article has more details. I had a reset on a mortgage here recently and I found the lending environment fall less friendly than it was previously. This is the reason. The banks are concerned about taking a hit.

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Last week, I got off the phone with the CEO of one of the largest mortgage lenders in the United States. What he told me wasn’t in any press release or CNBC segment. It wasn’t in the Fed minutes or Wall Street research notes. It was quietly devastating. “Mortgage defaults are up over 200% in the last six months.”

That one sentence reframed the macro picture. It confirmed what many investors have felt beneath the surface: this isn't just about high interest rates or inflation fatigue; it's about behavioral collapse. The U.S. consumer is no longer just stretched. They're snapping.

For all the talk about a “soft landing,” this is a hard truth. We’re witnessing the early stages of a credit deterioration cycle that markets are failing to price in. It’s showing up first in subprime auto, now in mortgages, and next it may bleed into broader consumer credit and regional banks.

This isn’t a doom prediction. It’s a recognition of inflection points I’ve spent my career identifying. The signs are flashing red for sectors exposed to leveraged consumers and real estate-linked lending. Investors need to ask: where is the risk hiding? Which companies are fragile? And more importantly, which ones are built to survive this storm?

The ripple effects of a 200% spike in mortgage delinquencies could be significant for equities, especially as we look toward 2026. Those chasing high-beta names and ignoring balance sheet quality might be walking into the next drawdown.

A 200 percent increase in mortgage delinquencies in just six months is not a statistical anomaly. It is the result of three powerful forces converging beneath the surface of the economy. Investors who ignore them are missing early warnings.

The first is interest rate fatigue. After two years of relentless tightening by the Federal Reserve, the impact is finally hitting home. Variable rate resets on mortgages and home equity lines of credit are taking a toll. Credit card balances are ballooning. For many Americans, homeownership is no longer just unaffordable to achieve. It is becoming unaffordable to maintain.

Second, there is the pandemic overhang and the disappearance of so-called excess savings. That story has ended. Consumers have already spent on their reserves trying to maintain lifestyle spending during periods of high inflation. Now, the cushion is gone. What remains is a fragile financial position with no room for error.

Third, wage stagnation among lower income earners is compounding the problem. Nominal wages may have increased, but real wage growth for most working Americans has failed to keep pace with the cost of living. Prices have climbed. Paychecks have not. Every expense now feels heavier. The margin of error no longer exists.

Mortgage delinquencies are not a blip in the data. They are a leading indicator. They are the first crack in a leveraged economy. And that matters for every investor trying to assess risk as we head into 2026.

It's easy to overlook how credit problems really begin. On the first day, they don't make the news.

It always starts quietly. A few lenders tighten up on new credit issuance. Then, small losses begin to tick higher. Next, earnings guidance from banks starts to shift. After that, markets begin waking up to the reality that a credit downturn is underway.

This is not alarmism. It is pattern recognition. We have seen this sequence before, in 2007, in 2015, and again in early 2020. Each time, there was a belief that the economy was stable, and the consumer was resilient. And each time, the real deterioration began not at the edges, but in the middle.

It doesn’t take a collapse in subprime to trigger broader concerns. Often, the first real cracks appear in prime borrowers who were stretched thin, quietly falling behind while headlines focus on everything else.

Investors who wait for the obvious signs are usually too late. The time to pay attention is when the signals are faint but consistent. Right now, those signals are getting louder.

when the signals are faint but consistent. Right now, those signals are getting louder.......

forbes.com/sites/jimosman/2025/07/12/mortgage-defaults-are-exploding-what-smart-investors-see-coming/

Why does this cycle keep happening?

Ken, same with a friend that runs a remodeling company. He's taken a part time job selling roof's (post hailstorm) for another friend because his schedule is so light right now. Two years ago he told me it would be 6 months before he could get to a job for me.

Unless interest rates come down I could see things tighten up significantly in the near future. This wouldn't be a good time to have a portfolio of near zero cash flowing properties that are financed on LOC's or ARM's where the bank could call them due.

I was looking up the Fredie, Fannie and USDA delinquency rates over the past few months. They are up year over year but they well below Pre-Covid numbers. The 60-day delinquency rate was at less than 0.6% on all three scales.

Where I can feel things are getting worse, it is still a relative point. Instead of appreciating with a national rate of over 5% we are on track to appreciate under 2%, with inflation staying at 2.5%. So the trend is downward indeed. Does this mean the market is in a free fall? It just means that inventories are slowly growing and seller concessions are increasing. Roughly 12% of all listings here are getting pulled before the list period is over.

So there is opportunity available. But the truth is they are always there, it's just that it's harder to create the transaction into a true deal. To make the numbers work, using BRRRRR alone doesn't work. Master Leasing and Options make sense now a days. Collectively we can blame this on a dozen different factors, but the cause doesn't matter as much one's plan of action moving forward.

I have made the mistake before of trying to time the market. If there is a decrease of say 2% this year and next, (4% total) and you waited on the sidelines for three years waiting for that 4% decrease, you would have missed on 13% in increases.

So instead of trying the timing method, I would suggest a dollar cost approach to real estate investing. The problem is most investors don't buy enough to make this work. Typically, I try to do 6-10 transactions per year. I am doing fewer transactions this year, and they tend to be smaller dollar amounts. That isn't to say that if a good big ticket buy comes up, then I don't buy.