Talk about an interesting dilemma. Everyone knows about the California housing industry, which of course also ties in with unemployment and the rest of the problems California is having with their finances. A big part of the housing industry’s problem is the high foreclosure rates that are still occurring, even as a portion of their housing market is starting to recover.

It turns out the foreclosure rate could be much higher than it is. Many people have stopped paying their mortgage because they just can’t afford the payments, or because the worth of their homes at this juncture doesn’t seem to make it worthwhile. By all rights, banks could foreclose upon those homes.

But a funny thing is happening. Banks aren’t foreclosing on all the homes that are out there. Some people haven’t made payments in more than 2 years, but haven’t heard much beyond the normal mailing of the bill. What’s going on?

Could be a number of things. One, the rate of foreclosures is so high that banks can’t keep up with them all. Two, banks are worried that by foreclosing on so many homes the values of those homes will tank like they did in Florida. Three, many banks are so far behind on loan modification processes that they don’t know what to do about people who had stopped paying yet were waiting to hear whether they qualified for those modifications. Four, the state has been working on legislation that may have already passed limiting foreclosures in some fashion. And five, the state just received $700 million from the federal government, which is mainly to help homeowners who haven’t been able to make their mortgage payments, and if banks foreclose on those people they lose out on any money that the homeowners they bounced might have received.

All of this makes for a very interesting mix, one that seems like it’s going to take at least another 2 years just to get back to even, whatever that turns out to be. California is a mess; let’s hope for their sake that housing pulls out of it before something else happens.