ICE: Student debt, negative equity fuel pockets of mortgage risk

A rise in negative equity and exposure to student debt are creating “pockets of vulnerability” for U.S. homeowners. That’s according to ICE Mortgage Technology‘s July 2025 Mortgage Monitor report released on Monday.

The resumption of student loan payments and collection efforts on defaulted federal student loans in May, following a five-year pause, could increase financial pressure on some homeowners, according to ICE.

The report revealed that nearly 20% of mortgage holders also have student loan debt, a figure that climbs to almost 30% among Federal Housing Administration (FHA) borrowers.

Mortgage holders who are behind on their student loans are four times more likely to be delinquent on their mortgages, ICE reported. For reference, ICE said that the national delinquency rate ticked down 2 basis points (bps) to 3.2% in May, although it is up 16 bps year over year.

“While the slowdown in home price growth may be easing affordability pressures, and negative equity volumes remain low, we’re beginning to see localized pockets of recent homebuyers becoming financially exposed,” said Andy Walden, head of mortgage and housing market research at ICE.

“Borrowers with minimal equity — particularly those who purchased recently — are often the first to be exposed when home prices soften. These early signs of stress highlight the importance of monitoring borrower-level risk as market conditions evolve.”

Negative equity

Meanwhile, ICE Home Price Dynamics data is beginning to show the impact of softening home prices on equity positions in credit risk transfer (CRT) securitizations. The majority of CRT deals issued in 2023 and 2024 have seen modest upticks in negative equity rates in recent months.

“As figures from the July Mortgage Monitor bear out, national averages don’t tell the full story,” said Tim Bowler, president of ICE Mortgage Technology. “We’re seeing early signs of risk building within specific markets and within specific borrower populations, like borrowers with limited equity or who are behind on student loans.

“This is when proactive monitoring and data-driven risk management become essential. Identifying and engaging these borrowers early may prevent hardship later.”

ICE’s Home Price Index showed that annual growth slowed to 1.3% in early June, with prices in 30% of major markets falling more than a percentage point from recent peaks. While cooling price appreciation may improve affordability, it also risks the erosion of equity for recent buyers, especially those with low-down payment loans through the FHA or U.S. Department of Veterans Affairs (VA).

Nationally, 25% of seriously delinquent loans would be underwater if sold at distressed (REO) prices. In some markets, the risk is higher. For example, 27% of 2023–2024 vintage loans in Cape Coral, Florida, and 18% of 2022 vintage loans in Austin are now underwater.

ICE’s report also noted growing affordability pressure, with more than 8% of borrowers financing homes with adjustable-rate mortgages (ARMs) or temporary buydowns this year, which reduce monthly payments in the first few years of the loan. While these loans provide short-term relief, they may introduce future payment shocks if interest rates remain elevated or reset higher.

Overall mortgage performance

Serious delinquencies — loans that are 90 or more days past due but not in foreclosure — improved seasonally for the fifth straight month. But there are still 56,000 more of these cases than a year ago, representing 14% growth.

Disaster-related delinquencies declined, with 2024 hurricane-related cases down nearly 5,000 (26%) month over month and Los Angeles wildfire-related delinquencies falling 9% from May to June.

Foreclosure activity continued to climb year over year for the third consecutive month as VA foreclosure resumptions move through the pipeline.

FHA loans have driven much of the recent rise in non-current rates, which are up 12% year over year. By comparison, VA and conventional delinquency rates rose just 2%, while rates for loans held in portfolio were steady.