The economy is not bad for everyone. It’s bad for the people who can least afford it — and the Federal Reserve’s own data proves it.
A new analysis from the Federal Reserve Bank of New Yorkpublished on February 10, 2026, shows a large gap in mortgage performance across income levels. While the total number of mortgage delinquencies remains at historically low levels (about 1.3% of balances are more than 90 days past due), this average masks a dangerous reality.
The income distribution
RightDelinquencies in zip codes with the highest incomes
1.3%Overall serious default rate
According to the Analysis from the NY Fed using Equifax credit data:
Postal codes with the highest income
- The number of defaults remained at a historically low level
- Borrowers “seem largely insulated from these pressures”
- Blocked in low mortgage rates during 2020-2021
- Home values remain strong
Postal codes with the lowest incomes
- Defaults increased from ~0.5% to ~3.0% (2021-2025)
- A sixfold increase in just four years
- Hit by both rising unemployment and falling house prices
- Most vulnerable to foreclosures and foreclosure
When the Federal Reserve says the economy is “performing well on average,” consider that you could drown in a river that is, on average, three feet deep. It depends where you stand.–Steve Rhode
What is driving the increase
The NY Fed researchers identified two key factors that hit lower-income communities the hardest:
Why this is important for people with debt
If you’re in a lower-income area and struggling with your mortgage, know that you’re not alone – and you’re not failing. The economic math around you has changed.
- Home equity is your safety net. If your home’s value has fallen, you may have less room to refinance or sell in an emergency
- Unemployment hits housing first. When income drops, the mortgage is usually the largest bill that cannot be reduced
- Early action is important. The sooner you take out a mortgage that you cannot afford, the more options you have
- Contact your service technician in time if you have problems: tolerance and adjustment programs exist
- Discover HUD-approved counseling bee consumerfinance.gov/housing (free)
- Know your options – modification, forbearance, short sale, deed-in-lieu, and yes, bankruptcy can protect your home in some cases
- Above all, protect retirement accounts — don’t drain your 401(k) to save a house you may not be able to keep
Key Takeaways
- NY Fed data shows mortgage delinquencies in lowest-income zip codes increasing sixfold between 2021 and 2025
- The wealthiest zip codes are still at historic lows – a distinctly K-shaped economy
- Rising unemployment is the strongest driver, affecting two-thirds of U.S. counties
- Falling home prices are exacerbating the problem, especially in areas like Florida’s Gulf Coast
- The overall default rate of 1.3% masks the extreme inequality between income groups
- If you’re struggling with your mortgage, act early: the options become fewer the longer you wait
(Source: Federal Reserve Bank of New York, Liberty Street Economics)
Frequently asked questions
Is the number of mortgage arrears increasing across the board?
No. According to data from the NY Fed, overall mortgage delinquencies remain near historic lows at about 1.3%. However, this average hides a dramatic gap: Delinquencies in the lowest-income zip codes increased sixfold between 2021 and 2025, while the wealthiest neighborhoods remained flat.
What is a K-shaped economy?
A K-shaped economy is one in which different groups experience different outcomes after an economic event. In this case, higher-income homeowners are doing well with stable home values and steady low mortgage rates, while lower-income homeowners face rising unemployment, declining home values and increasing delinquencies.
What should I do if I fall behind on my mortgage?
Contact your mortgage advisor immediately to discuss your options for deferral or modification. Contact a HUD-approved housing counselor for free consultation at consumerfinance.gov/housing. Consider all options, including modification, short sale, deed of substitution, or bankruptcy protection. Most importantly, don’t drain your retirement accounts to save a home that you may not be able to keep in the long run.
Does bankruptcy protect my home from foreclosure?
In many cases yes. Chapter 13 bankruptcy can halt foreclosure proceedings and create a court-supervised plan to make up for missed payments over a period of three to five years. State homestead exemptions can also protect your home equity. Consult a bankruptcy attorney in your state for situation-specific advice.
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