Jun 3, 2026 4:13:50 PM
U.S. foreclosure filings hit a six-year high in the first quarter of 2026, with nearly 120,000 properties filing, an over 25% jump from the same period a year earlier, and the highest level since the pandemic-era relief measures first suppressed activity in early 2020. Foreclosure-related legal requests rose 20% year-over-year in March alone.
The causes are layered, including rising property taxes, higher insurance premiums, HOA fee increases, and general stress to household finances. Borrowers who purchased in 2021-2025 at elevated prices face the additional headwind that loan modifications today often raise rather than lower monthly payments, because current rates are well above where most distressed borrowers originally locked in.
Recent changes to the federal FHA and VA programs are making loan modifications even more difficult for stressed borrowers. FHA borrowers can now only apply for loan modifications once every two years and must make three consecutive payments before qualifying for assistance, a significant departure from the Biden-era policies that placed no limit on the number of times a borrower could access relief.
FHA mortgages represent only about one-tenth of all outstanding US mortgages and are concentrated in Ginnie Mae pools. While this is a meaningful story about the current state of the American consumer and the economic backdrop, it is not a credit risk story for credit union investors holding Agency MBS/CMOs in their investment portfolios.
Structural Protection Matters
When a loan underlying a Fannie Mae, Freddie Mac, or Ginnie Mae security goes into foreclosure, the Agency guarantee providers investors with specific protection—the Agency purchases the defaulted loan out of the pool at par. Not a partial recovery, not a workout, a full purchase at par value. The Agency guarantee exists for moments like this when foreclosures are rising.
From the investor’s perspective, a foreclosure in an Agency pool is nearly indistinguishable from a voluntary prepayment once the Agency completes the buyout process. Principal comes back with no credit loss. This is structurally different from whole-loan mortgage pools or private-label MBS where foreclosure means the investor absorbs real losses after liquidity proceeds fall short of the unpaid balance.
What Should Investors Watch in the Agency MBS Market?
If credit risk isn’t the concern, we should instead look at a few second-order effects:
- Prepayment volatility. A wave of Agency buyouts, particularly in seasoned low coupon Ginnie Mae pools heavy with FHA/VA collateral will accelerate principal return. Depending on the prices of those bonds, that matters for portfolio yields and reinvestment speeds.
Consider reviewing prepay scenario analysis and look at multiple different prepayment models—not just the broker’s base case scenario. - Collateral differences. Not all Agency pools are equally exposed. Ginne Mae pools backed by FHA loans carry more risk due to the at-risk borrower population than conventional Fannie/Freddie collateral. Understanding pool composition is increasingly relevant as we see different levels of financial stress across American households.
- Whole loans and first mortgages. Credit Unions with meaningful direct mortgage originations face different risks than the buyers of Agency MBS. Direct mortgage lenders should closely monitor credit trends in their portfolio as national trends may or may not directly correlate to your membership. The framework for how housing stress impacts ALM and credit models is materially different for direct mortgage exposure versus Agency MBS.
Where the Math and the Mission Meet
Credit unions exist to serve members, and some of those members are among the borrowers showing up in the foreclosure statistics. It is important to remain proactive on loss mitigation strategies including financial counseling resources which can provide the credit union difference.
It is equally important to remain proactive on your balance sheet strategy, which allows you to sustainably serve members through changing economic conditions. Agency MBS/CMOs can play an important role in balance sheet management, offering liquidity, high-quality collateral, and predictable cash flow characteristics when used thoughtfully within a broader strategy. Outcomes will vary based on security selection, portfolio structure, and each institution’s specific risk tolerance and objectives.
Because different portfolio structures and market conditions can materially affect results, it’s important to evaluate these securities in the context of your institution’s overall strategy rather than as a one-size-fits-all solution. That’s where Accolade Advisory can help. We offer tailored solutions and strategies to help credit unions build resilient balance sheets that can absorb the unexpected without sacrificing mission.
Disclosures: Accolade Investment Advisory, LLC (“Accolade”) is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. Services may include both investment advisory and non-advisory consulting, provided under separate agreements.
This material is for informational purposes only and reflects current market conditions and opinions, which are subject to change. This material does not constitute investment advice or a recommendation to buy or sell any securities. Decisions should be based on a client’s specific objectives, financial situation, and risk tolerance. Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results. No assurance can be given that any strategy will be successful.