Think we are out of the real estate mess, think again; 1 in 5 still underwater

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Nearly one out of five homeowners underwater

Close to 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) said in its July Mortgage Monitor Report.

The mortgage technology firm said mortgage delinquencies are down 30% from the peak established in January 2010. LPS said there is a direct link between negative equity and new problem home loans, and risks remain if home prices decline.

“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.