Could growing credit distress have a big negative impact on the mortgage outlook?
Consumer credit quality worsened in August, with more borrowers, both superprime and subprime, falling behind on payments, the latest VantageScore CreditGauge report showed.
The findings pointed to mounting repayment pressures that are now affecting even the most creditworthy Americans, a shift that industry experts said could have ripple effects for mortgage lenders and the broader financial sector.
VantageScore’s August 2025 data showed that auto loan delinquencies increased across all stages, surpassing pre-pandemic levels.
“The broad-based decline in consumer credit quality indicates that economic pressures are no longer concentrated among some VantageScore credit tiers and income levels,” Susan Fahy, EVP and chief digital officer at VantageScore, said.
“For example, the increase in auto loan and personal loan credit delinquencies likely reflects, in part, the compounding effects of sustained inflation, consistently elevated interest rates, higher borrowing costs, and an unsteady employment picture,” Fahy said.
Personal loan originations rise as consumers seek liquidity
The report also highlighted a shift in consumer borrowing patterns. Unsecured loan originations, including personal loans and credit cards, increased month-over-month—up 0.45% and 0.39% respectively—as more consumers refinanced debt with unsecured loans.
The average credit card balance climbed to $6,500, up $96 from a year earlier, with utilization rates also ticking up to 30.77%. These trends suggest that households are increasingly relying on revolving credit to manage persistent cost-of-living pressures.
A Zety Survival Debt Report found that more American workers are stuck in debt, with 37% carrying mortgages and 16% giving up on owning a home due to financial strain. Credit cards were the most common debt—71% of workers had balances—followed by mortgages, highlighting the pressure from housing costs. The survey also showed that just 27% were actively paying down debt, while 21% could only afford minimum payments and 9% struggled to pay even that.
Superprime borrowers not immune to stress
The biggest increase in missed payments was among superprime borrowers—those with VantageScores from 781 to 850—in the 90 to 119 days past due category, where delinquencies surged over 300% compared to last year.
While absolute delinquency rates in this group remain low, the sharp increase signals that even the most reliable borrowers are struggling to keep up with payments.
Mortgage brokers have become key partners for clients facing tough financial times. Some are deploying creative solutions, such as refinancing existing loans or consolidating high-interest debt, to help borrowers stay afloat.
"Unfortunately, we know Americans are in debt up to their eyeballs right now,” Mike Alberico, a loan officer with Carolina Mortgage Advisors, told Mortgage Professional America.
“I’ve probably done six cash-out refis, and have taken people off those 2% and 3% rates and sometimes put them on a 7% or 7.125% rate, but the overall monthly payment goes down by like $900 even if their mortgage goes up."
Brian Mozley, chief growth officer at Choice Mortgage Group, said economic uncertainty has made things challenging for both buyers and sellers. Mozley stressed that having as easy a process as possible removes one of those potential pain points that could cause a buyer to back out.
“I think that we have to be prepared as mortgage professionals to be an advisor to our clients. While we don't have all the answers, you have to be empathetic to the situations that people are in and the questions that they're naturally going to have," Mozley told Mortgage Professional America.
Broader implications for mortgage and lending sectors
The uptick in delinquencies and shifting credit usage patterns come as mortgage lenders face their own set of challenges.
Rising consumer debt levels and deteriorating credit quality could translate into tighter underwriting standards and higher default risks, especially as the Federal Housing Finance Agency (FHFA) moves forward with its mandate to use VantageScore 4.0 for Fannie Mae and Freddie Mac guaranteed mortgages.
Industry analysts have warned that these changes could reshape borrower eligibility and risk assessment models in the months ahead.
The average VantageScore 4.0 credit score remained stable at 701 in August, but the underlying trends point to a more challenging environment for both consumers and lenders.
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