OCC: Mortgage stress creeps up again — what banks and MBS investors need to know

OCC releases Q3 snapshot — mortgage trouble edges higher and markets should care

The Office of the Comptroller of the Currency released its quarterly look at first-lien mortgage performance for the third quarter of 2025. The report shows mortgage distress nudging higher after a period of relative calm. Delinquencies ticked up, serious delinquencies rose modestly, and forbearance volumes remain small but persistent in certain pockets. For banks, mortgage servicers and investors in residential mortgage-backed securities (RMBS) this matters because small shifts in loan performance can quickly change capital needs, credit spreads and trading sentiment.

What the numbers show: delinquencies, serious delinquencies and regional patterns

Overall mortgage delinquencies increased in Q3 compared with the previous quarter, reversing some of the improvement seen earlier in the year. The rise was not uniform. Prime, high-credit-score borrowers stayed largely stable, while lower-credit-score and higher loan-to-value cohorts showed the largest deterioration. Serious delinquencies — loans 90+ days past due or in active foreclosure — grew at a faster pace than short-term late payments, signaling more loans are moving toward long-term stress rather than just temporary misses.

Forbearance re-entry and lingering modification cases were concentrated in states where home-price growth has slowed or reversed. Sunbelt markets that had boomed earlier in the cycle showed resilience, but certain colder-weather and economically stretched areas reported rising trouble. Agency loans backed by government programs continued to show better outcomes than non-agency or private-label RMBS cohorts, which saw the clearest deterioration in performance.

By loan type, adjustable-rate mortgages and loans originated during the years of rapid refinancing activity posted more strain, reflecting payment shock as rates reset and the loss of cheap rates for some borrowers. Home equity lines and second-lien exposures were also riskier in the lower-credit segments. Quarter-over-quarter comparisons point to a gradual worsening, while year-over-year comparisons show the level of stress is still below the peaks seen in prior cycles but clearly inching higher.

What investors should watch: banks, MBS spreads and mortgage-credit winners/losers

Higher mortgage delinquencies affect several investor groups. Banks such as JPMorgan Chase (JPM), Bank of America (BAC) and Wells Fargo (WFC) face direct exposure through mortgage servicing rights, retained loans and credit pipelines. A steady rise in serious delinquencies will pressure loan-loss provisions and could compress return-on-equity if it continues.

RMBS prices and MBS spreads are the next link in the chain. Private-label RMBS and some non-agency tranches tend to widen faster when early delinquency trends worsen. Mortgage REITs and portfolio managers that lever up to chase yield — firms like Annaly (NLY) and AGNC Investment (AGNC) — are sensitive to spread moves. A widening in spreads can hit their net interest margins and force deleveraging if funding costs rise.

Mortgage originators and lenders are split. Companies focused on servicing and long-term fee income may weather a slow uptick in delinquencies, while originators that rely on volume and rate-sensitive refinancing will see stress if borrowing demand stalls. Names such as Rocket Companies (RKT) and LoanDepot (LDI) may face narrower margins in a market that’s both rate-sensitive and credit-sensitive.

Short-term market sensitivity will be highest around two triggers: fresh labor-market weakness that raises unemployment, and further weakness in home prices that lifts loss severities. Expect RMBS spreads to react quickly to either signal, and bank stocks to move on changes to provision guidance.

How the OCC measures mortgage performance — scope and caveats

The OCC report covers first-lien mortgages held or serviced by national banks and federal savings associations. It tracks standard metrics: current delinquency, serious delinquency (typically 90+ days delinquent or in foreclosure), forbearance enrollments and modifications, and performance by borrower credit score and loan-to-value bands. The agency aggregates data across its supervised institutions, so the report reflects a broad slice of the market but not every lender.

Caveats matter. The OCC’s sample skews toward large, regulated banks and may under- or over-represent niche mortgage originators and non-bank servicers whose exposures sit largely outside the report. Reporting lags and different modification strategies between servicers can also mute short-term swings in the data.

Actionable takeaways and near-term signals investors should track

First, the rise in serious delinquencies is the headline risk: it signals loans shifting into longer-term loss pathways, which demand closer scrutiny from bank investors and RMBS traders. Second, watch home-price momentum and local employment data — those two items largely drive whether delinquency upticks remain contained or worsen. Third, monitor agency versus non-agency spread behavior. If non-agency spreads widen sharply relative to agency paper, expect funding pressure for leveraged mortgage investors and downward pressure on mortgage REITs.

In the coming weeks, quarterly bank earnings, servicer loan-loss guidance and any federal statistics on unemployment and house prices will provide the next big clues. For now, the Q3 OCC snapshot suggests mortgage stress is increasing enough to be on investors’ radars, but not yet at crisis levels. That makes for a market that rewards close attention and fast reaction to small data shifts.

Sources

• occ.gov