Roughly 18% of U.S. homeowners who are current on their mortgage payments are classified as underwater, setting the stage for additional defaults if home prices fall deeper, Lender Processing Services (LPS) noted in its July Mortgage Monitor Report.

The Jacksonville, Fla.-based mortgage technology firm said mortgage delinquencies are down 30% from the peak established in January 2010.

Still, risks remain with LPS noticing a direct link between negative equity and new problem home loans.

"As negative equity increases, we see corresponding increases in the number of new problem loans," LPS said Monday. "In Nevada and Florida, two of the states with the highest percentage of underwater borrowers, more than 3% of borrowers who were up to date on their payments are 60 or more days delinquent six months later. This suggests that further home price declines - should they occur - could jeopardize recent improvements."

The report does show improvements in loan delinquencies with the U.S. loan delinquency rate falling to 7.03% in July, a 1.6% drop from June.

The foreclosure pre-sale inventory rate also edged down 0.2% month-over-month, hitting 4.08% in July.

States with the most non-current loans include Florida, Mississippi, Nevada, New Jersey and Illinois. Meanwhile, those with the lowest percent of non-current loans include Montana, Alaska, Wyoming, North Dakota and South Dakota.

What the study found is that non-judicial foreclosure states are seeing greater improvements with delinquency rates falling faster while judicial foreclosure states are not seeing non-current loan rates drop at the same rate.

Judicial states year-over-year watched their non-current inventories fall 3.1% in July, compared to the 8.7% drop experienced in non-judicial foreclosure states.

kpanchuk@housingwire.com