Almost 5 million homeowners became eligible to refinance their home loans in early January when average rates for 30-year fixed-rate mortgages briefly dipped below 6% following the news that Fannie Mae and Freddie Mac may buy up to $200 billion in mortgage bonds.
Average rates rebounded above 6% for the remainder of January, shrinking the pool of “in the money” refinance candidates but highlighting the origination opportunity awaiting lenders should borrowing costs sustain movement below that threshold in 2026.
“When rates hit 6.04% on January 9, the number of homeowners in the money to refinance jumped by 20% and affordability hit its best level in four years,” noted Andy Walden, head of mortgage and housing market research at ICE Mortgage Technology, in a press release accompanying the firm’s early snapshot of January mortgage activity.
“That said,” Walden continued, “affordability remains structurally challenged, with home prices still elevated relative to incomes and meaningful differences emerging across regions and borrower segments.”
Those structural affordability challenges have pushed the pace of home sales to three-decade lows since the end of 2022, a sustained slowdown that has mortgage professionals hopeful that easing borrowing costs this year can offset sky-high home prices.
The Mortgage Bankers Association (MBA) recently reported that the median monthly payment for a newly originated mortgage decreased for the seventh consecutive month in December to land at $2,025, down $102 or nearly 5% from a year earlier.
ICE estimates that the monthly principal and interest payment to purchase the typical home was $2,091 in January, a 7% year-over-year decline. But the national home price-to-income ratio remains elevated at around 4.8-to-1, “well above its long-run average” around 4-to-1.
ICE says that household incomes would need to rise more than 15%, assuming no further growth in home prices, to return to pre-pandemic price-to-income ratios.
Rising negative equity in government loans
Risk lurks amid hopes for softening in today’s tight purchase environment. More than 1.1 million borrowers, or 2.1% of mortgage holders, were underwater on their loans at the end of 2025, according to ICE, meaning those borrowers owed more on their mortgages than a sale of their home would repay, putting them in a position of “negative equity.”
That’s the highest level of negative equity since early 2018, even as home equity levels nationally are at record high levels. Federal Reserve data shows total home equity exceeded $34 trillion at the end of the third quarter of 2025, with 40% of that held by senior homeowners.
Borrowers in negative equity are “heavily concentrated” in government loan programs insured by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA), according to ICE’s January snapshot, while being geographically concentrated across metros in the southern U.S.
Homes in negative equity made up around 9.6% of VA loans and 5.7% of FHA loans in January, compared to just 0.5% of mortgages purchased by Fannie Mae and Freddie Mac and 1.3% of portfolio-held mortgages.
Though lower-downpayment mortgages like those supported by the FHA and VA tend to be more susceptible to falling into negative equity when home prices soften, delinquency rates have risen substantially for FHA borrowers, with the FHA non-current rate above 13%, more than triple the market average.
More than 1 million FHA loans were past due last month, up 11% year over year. The national delinquency rate fell 0.16% in January as the number of borrowers one payment past due declined by 116,000. Foreclosure starts rose, however, by 27% annually last month, remaining about 24% below 2019 levels.
“Today’s market is full of cross currents — borrowers responding quickly to rate shifts, affordability improving for some but not others, and pockets of rising credit stress,” commented Bob Hart, president of ICE Mortgage Technology, in Monday’s data release.
