Have foreclosures peaked?

The September numbers fell noticeably in California, but the OC Register's Matt Padilla says there's disagreement on what exactly it means. Clearly, part of the drop-off is due to a new state law that requires lenders make an effort to talk to delinquent borrowers at least 30 days before filing a notice of default. The law took effect Sept. 8.

Another factor that could lead to fewer foreclosures is the October settlement between Bank of America, its subsidiary Countrywide Financial, and 11 states over Countrywide's lending practices. Starting Dec. 1, as many as 400,000 customers could get $8.4 billion in interest rate and principal reductions on their mortgages to avoid foreclosure. As much as $3.5 billion could go to California borrowers.

But here's the thing: This is no longer just a subprime problem. Even the most optimistic economists have put aside the notion that the housing crisis could be quarantined from the rest of the economy - even to the point of avoiding a recession altogether. Today's disastrous employment report confirms - as if anybody needed confirming - that this is turning into a more typical downturn involving most sectors of the economy. That means lots of layoffs. And with layoffs you get.... right, more foreclosures. Except that this new wave won't just involve subprimers who made deals they had no business making. It will involve homeowners who might have owned their house for years but who now can't pay the mortgage because they don't have a paycheck coming in.