Why this article is important: Even as California’s real estate market is stabilizing, cracks are appearing. One such troubling sign is higher shares of subprime lending in 2025.

Subprime lending weighing a comeback

The volume of mortgage loans originated in California during 2025 was 10% higher year-over-year, according to the CFPB.

This accounting includes purchase originations and refinances of all types of residential and investment properties. Notably, this data does not indicate 10% more mortgages were originated — rather, the dollar volume of mortgage originations was 10% higher in 2025 than the prior year.

Of the mortgages originated in mid-2025:

  • $1.0 billion were originated by borrowers with credit scores below 580 (up from $689 million a year earlier);
  • $3.1 billion were originated by borrowers with credit scores between 580 and 619 (up from $2.5 billion a year earlier);
  • $9.1 billion were originated by borrowers with credit scores between 620 and 659 (up from $7.2 billion a year earlier);
  • $25.9 billion were originated by borrowers with credit scores between 660 and 719 (up from $22.6 billion a year earlier);
  • $124.2 billion were originated by borrowers with credit scores above 720 (up from $104.5 a year earlier)

Overall, borrowers with a super-prime credit score (above 720) make up the bulk of mortgage originations, meaning credit standards continue to have some meaning (unlike during the Millennium Boom when all you needed to qualify for a mortgage was a signature and a pulse). Still, borrowers with deep subprime (below 580) and subprime (580-619) credit scores are making gains.

In fact, the largest percentage gains in mortgage origination volume took place in the deep subprime group of borrowers, followed by the subprime.

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Caution ahead

While subprime lending is ticking higher, other more reassuring data shows the rest of the real estate market is relatively stable, with:

After the sudden panic of the pandemic economy and the whiplash of volatility that followed, a year of stability is a welcome change for real estate.

And yet, the turn to less qualified borrowers is just one of the troubling signals that there are bumps ahead.

For example, the share of mortgaged homes 90 or more days delinquent on payments is at its highest in a decade. Further, mortgage delinquencies are concentrated in lower-income neighborhoods, which are most dependent on employment income (and most susceptible to foreclosures when jobs are hit).

Another warning signal is the rising share of adjustable rate mortgages (ARMs), with borrowers seeking an ARM in 8% of the mortgage applications submitted in December 2025, up from 5% in year earlier, according to the Mortgage Bankers Association (MBA).

Homebuyers use ARMs to extend their purchasing power, as the initial “teaser” rate is lower than the rate on fixed rate mortgages (FRMs). This enables the buyer to qualify for a higher mortgage principal. However, when ARMs reset a few years down the line, the jump in payments can result in payment shock — often culminating in an inability to pay.

The real estate patterns to watch are:

  • the increased use of ARMs by low credit rated households allowed now to artificially pump of the consumer economy; and
  • the income tier first effected by increasing job losses and lost household income.

When these recession signals kick in, the wintering of the real estate economy must first run its course before we cycle into an longer period of favorable growth from a restabilized real estate market.

Related article:

Mortgage delinquencies lead to foreclosures

When cracks form in the ice, anyone required to forge ahead — namely, real estate professionals — must look beyond their good-times behavior. Brokers who wish to protect themselves from future downturns will diversify their agent’s services against foreseeable transitions in our economy.

Brokers need to consider offering and performing other services as direct providers rather than referring clients to third parties. Brokers have a built-in marketing advantage to avoid “leaving money on the table.”  They are the gatekeepers to transactions as they represent buyers and sellers who need third party services to process and close transactions — services an astute broker provides for an additional fee, as disclosed.