California: Golden dream or foreclosures by the sea?

Countrywide Financial Corp., the largest U.S. mortgage lender, last week slashed its 2007 forecast, suggesting that rising delinquencies and defaults may spread beyond subprime borrowers to borrowers with stronger credit.

"Business is picking up and I think it's going to continue," said Patrick McGilvray, president of TheHomeBuyingCenter.com, a Sacramento firm that matches distressed homeowners with investors and home buyers.

Other experts say California's mortgage troubles will be largely contained to risky borrowers who bought houses more expensive than they could afford, as well as their lenders. But they see no signs of a slowdown in consumer spending or recession.

Howard Roth, chief economist for the state Department of Finance, said the economy of California, the most populous U.S. state, is fundamentally solid. Its current housing troubles pale compared with the beating the housing market suffered in the early 1990s from gutted aerospace payrolls, he said.

The state's unemployment rate was 5.2 percent in June, compared with nearly 10 percent in late 1992 and early 1993, when Californians desperate to leave the state were parting with their homes at fire-sale prices.

"In the early 1990s we were losing a major industry and losing it for good. Now we're paying the price for a housing bubble, but housing will come back," Roth said. "We really haven't lost jobs yet. That may happen. But in the early 1990s we lost over 500,000 jobs."