By foreclosure tracker Sean O'Toole's estimate, $1 billion worth of house payments are not being made in California because 700,000 households are in default or headed that way.

The thinking: Why bother making my house payment when I'm going to lose it anyway? So, where is that cash going? A billion dollars just doesn't go missing.

University of Pacific economist Jeff Michael thinks those families have used it to replace credit and their equity lines on the houses, which had become their piggybank.

"They are cut off to credit," he said. "Instead of using financing, they are now operating with cash."

That certainly matches what businesses tell us. Cash has become king.

Many families are probably using that money to pare down debt and, sad to say, to pay unscrupulous loan modifiers who promise the world and deliver nothing.

The nonprofit ClearPoint Credit Counseling Solutions recommends families save that money to rebuild their finances and credit, but life likely gets in the way.

"I've foreclosed on 150 homes and have never met someone at the end who had any money," said O'Toole, founder of ForeclosureRadar.

HOMES MORE AFFORDABLE

Well, there's one good thing about declining home prices.

More people can afford to buy a house. Consider this: About 77% of households in Fresno County could afford an entry-level home in the first quarter of this year. That was up from 72% in December and an increase from 58% only a year ago, the California Association of Realtors says.

The association -- assuming an interest rate of 4.96%, a 10% down payment and the purchase of a house that is 85% of the prevailing median price -- calculates an entry-level price in Fresno County at about $120,000.

That means a family with a monthly income of $2,200 per month (assuming they also have a car payment of $300 per month) using an FHA loan, a $4,500 down payment and a FICO score of 645 or better could get into their first house at a monthly payment of about $820, including taxes and insurance, said Richard Barnes of Resource Lenders.

As a result, purchase loans are booming. But in an interesting twist, refinances also are up, even though home values have fallen and foreclosure notices are increasing. Refinances make up about 47% of all the loans issued by Resource Lenders this month. That compares with 36% in April.

Barnes attributes that boost to more people "streamlining" their current FHA loans. That allows families to refinance an FHA loan to a lower interest rate without getting a new appraisal.

What they are doing, Barnes said, is switching FHA loans with rates between 6.5% and 7% for loans at 4.75% or 5%. And about 20% of those who are refinancing also are taking some cash out of their remaining equity to fund college educations or, increasingly, the purchase of investment property, Barnes said.