Subprime Mortgages Are On The Rise Again

Subprime mortgage lending is rising again in 2025, with a notable increase in both new originations and balances held by borrowers with lower credit ratings, signaling heightened risk in the financial system and growing economic strain for many Americans.​

Subprime Lending Trends

• The share of subprime borrowers, defined by credit scores below 620, has increased to 14.4% in Q3 2025, marking its highest level since 2019.​

• Of the 3.22 million first mortgages issued in 2025, about 208,400 were granted to subprime borrowers—a 10.7% rise compared to the previous year.​

• The total balances on subprime mortgages reached $54.6 billion in August, up 20.8% year-over-year.​

Drivers of the Increase

• The cost of living remains high, and many Americans have depleted their savings.​

• Stagnant middle-class wages and tighter prime credit access have led banks to raise credit score requirements and issue fewer prime loans.​

• Fintechs and non-bank lenders are expanding access to subprime credit, further fueling growth in this sector.​

Delinquencies and Economic Impact

• There is a rising proportion of subprime auto loan delinquencies, with 6.65% of borrowers more than 60 days late on payments—an all-time high since the early 1990s.​

• Mortgage foreclosures have increased in 2025 but remain below historic peaks for now, according to property data and analytics firms.​

• Experts caution that rising subprime lending may increase financial system risks and reflect deeper household debt pressures, but current figures have not yet triggered panic akin to the 2008 crisis.​

Sector Breakdown

• Subprime lending is expanding in personal loans, auto loans, bankcards, and mortgages, with the fastest growth seen in unsecured personal loans and bankcards.​

• Delinquency rates for many subprime products are rising, indicating higher default risk.​

These trends suggest Americans are increasingly turning to riskier forms of credit amid ongoing financial pressures, contributing to a more polarized economic landscape and potential future instability.​

Rising subprime mortgages introduce more financial risk into the housing market and may undermine housing market stability, especially if delinquencies increase and household debt levels remain high.​

Impact on Market Stability

• Increased subprime borrowing makes the system more vulnerable to economic shocks, as these loans are riskier and have higher rates of default.

• While home foreclosures are rising in 2025, they remain below historic highs; however, continued growth could trigger more widespread instability if delinquencies accelerate.​

• Early-stage mortgage delinquencies are slowly rising, not just among subprime borrowers but even within higher credit categories, signaling growing credit stress in the market.​

Economic and Social Repercussions

• High levels of subprime mortgage origination echo trends seen before previous financial downturns. While no sharp crisis is predicted at this stage, experts warn of potential gradual, persistent declines in household financial health, which may affect rates of homeownership and even demographic trends like household formation.​

• The market is currently constrained by high interest rates and low inventory, balancing some risk by reducing over-leverage; however, a sudden spike in defaults or an economic shock could put added pressure on home prices and credit conditions.​

Overall, while current conditions do not suggest an imminent 2008-style collapse, the increase in subprime mortgages adds fragility and long-term risks to the housing market, particularly if economic stressors mount or regulatory oversight weakens.​