1) Long time homeowners that are in good shape (although most are unhappy they didn't sell in 2006).
2) Those that have let the house go or have stopped making payments and are awaiting the inevitable.
3) Those that are still making the payments and really do think the values will shoot back up again in a few years. The crazy thing I find about this group is that many of them are going into serious debt just keeping up with their payments. I think this is the group that will be making headlines next year. Many of them are burning through credit cards, savings accounts and in some cases even their 401Ks trying to keep up on the mortgage. So what will happen to these folks if the values don't come back. This groups is trying "to do the right thing" but they will come out far worse than group two in the end. Group two is saving and will be rebuilding their credit once the foreclosure or short sale happens. In a few years they will be able to buy again.
Fortunately I'm in group 1, but I know I'd be in group two had I purchased that house in 2005.
In other news (from Calculated Risk)
15.2% of California mortgages are now delinquent or in foreclosure......