John Comiskey, the owner of the insightful Substack newsletter Reversed Engineering Finance, discusses the impending FHA mortgage crisis and alarming delinquency rates. He explores the complexities of mortgage technology and the roles of Fannie Mae and Ginnie Mae in shaping the lending landscape. The conversation dives into the challenges of loan modifications and the ethical implications of government relief programs, raising critical questions about financial accountability and the future of the housing market.
John Comiskey highlights a looming FHA mortgage crisis characterized by high delinquency rates and troubling re-default rates approaching 70%.
The discussion emphasizes how modifications intended to aid borrowers often result in higher payments, exacerbating their financial distress amidst rising interest rates.
Comiskey predicts significant implications for the housing market due to an anticipated wave of delinquencies, potentially affecting home prices and borrower recovery.
Deep dives
John Comiskey's Background and Expertise
John Comiskey has nearly two decades of experience in mortgage technology, having developed systems for mortgage originators and servicers. This extensive background allows him to understand the intricacies of mortgage financing and servicing, positioning him to offer insights on pressing issues like the FHA mortgage crisis. His work involves analyzing data from Ginnie Mae to expose patterns regarding delinquency rates in FHA loans. This analysis fuels his Substack, where he shares projections and detailed explanations about the financial system.
Current Challenges in FHA Loans
The discussion highlights a significant potential crisis in the FHA mortgage portfolio, which is marked by a high rate of delinquencies, primarily among modified loans. Comiskey notes that many of these modifications have resulted in troubling re-default rates that could reach as high as 70%. He emphasizes that modifications that were assumed to help borrowers often increase payments due to elevated market interest rates, leaving many borrowers worse off. This situation signals a looming crisis, particularly as changes in loss mitigation policies approach in February 2026.
The Role of Loss Mitigation in Crisis Management
Loss mitigation is a critical process discussed, where servicers seek to assist borrowers who are struggling to make mortgage payments. Comiskey discusses how the FHA’s loss mitigation procedures loosened during the COVID-19 pandemic, allowing borrowers to secure multiple partial claims to offset missed payments. While this might seem helpful, it has created an environment where some borrowers are incentivized to stop making payments entirely, leading to systemic issues. As a result, borrowers addicted to these partial claims may find themselves unable to recover once the temporary measures end.
Impact of Economic Factors on Mortgages
Economic conditions play a crucial role in mortgage performance, especially as interest rates significantly spiked from 2021 to 2023. This rise in rates complicates modifications for borrowers with earlier, lower-rate loans, as the FHA adjusts rates to current market levels. The modifications meant to assist borrowers often lead to higher payments, pushing many into deeper financial distress. Comiskey explains how the interplay of interest rates and mortgage policies creates a landscape ripe for future mortgage defaults.
Forecasting the Future of the Housing Market
Looking ahead, Comiskey assesses the potential implications of the impending wave of delinquencies and foreclosures in the FHA market. There’s cautious speculation that the number of problematic loans could reach around 150,000, which might influence home prices negatively. He emphasizes that factors such as the FHA's policies and the overall economic climate will determine the extent of these impacts on the broader housing market. As Comiskey works on projections and analyses for various mortgage portfolios, he aims to provide clarity amidst an uncertain financial landscape.
John Comiskey, owner of the Substack called Reversed Engineering Finance, a newsletter that explains the underlying mechanics of the financial system and then uses those mechanics to make projections. He talks the potential FHA Mortgage Crisis, loans, large amounts of delinquencies, why 2026 could be very interesting, and more. PLEASE SUBSCRIBE LIKE AND SHARE THIS PODCAST!!!
