But I'm still making payments on time, can/will the bank foreclose on my loan? Is this happening often in California? I ask because I'm getting ready to buy a home, even while home prices continue to fall. I plan to live there for at least 10 years so the dropping home prices don't bother me. Any help is appreciated.

Edit: Just to add, I plan on getting a 30 year fixed rate loan.

As long as you are making your payments on time you will not lose your home. If your lenders goes broke another lender will buy your loan from them and the only thing you will notice is a new address to send your payment to.

Enjoy your home.

You'll be fine. This just continues as business as usual generally speaking.

The last thing that any Bank wants is to take a property back when the customer is making ontime payments especially if they are upside down.

Only time you being underwater is going to have an impact is when you have an open line of credit. If you are underwater with an open line of credit, be prepared to have that line frozen. No real impact, except that you cannot access the remaining funds on your line of credit.