For once California’s economy looks good compared to that of some other states.

A foreclosure crisis that has dimmed the state’s golden glow with images of financial ruin and broken government is beginning to wane, says a leading trade group for the U.S. mortgage industry.

The Mortgage Bankers Association said Wednesday that California foreclosure starts have fallen from a year ago – even as problems grow in Midwestern Rust Belt states such as Ohio, Michigan, Indiana and Illinois.

“California is showing signs of improvement. We are seeing it on a quarter-to-quarter basis and year-over-year basis,” MBA Chief Economist Jay Brinkmann said.

Consider:

• In the past year California moved from fourth place among U.S. states for foreclosure starts to seventh.

• Mortgage delinquencies, while up from early 2009, fell slightly in early 2010.

• The percentage of California mortgages in the foreclosure process fell, too, during the past year.

California’s fragile improvements come as the national picture is less clear. Collectively, the longtime mortgage disaster areas – Florida, California, Arizona and Nevada – are becoming less of a problem nationally, MBA data showed.

“A year ago they had 45.3 percent of the problem loans,” said Brinkmann. “That’s down to 37.9 percent.

“We’re looking now at Illinois, Ohio, Michigan and Indiana. They’re climbing back into the list of problems,” he said. Those states have longer-term structural problems as their manufacturing economies continue to decline.

The new data confirmed improvements in California and the Sacramento area recently cited by researcher MDA DataQuick. Last month the firm said mortgage defaults have fallen for a year straight in the state and region, with foreclosures dropping now as well.

In hard-hit Sacramento suburbs such as Natomas, Lincoln and Elk Grove, residents see dwindling evidence of the crisis.

“All those houses that were vacant before were sold in the last year or two,” said Tyler Smith, a Keller Williams agent in Sacramento “A year ago it seemed every other house on some of those streets were vacant.”

Homeowners in distress are increasingly using short sales to unload their properties rather than losing them to foreclosure.

That’s helping preserve neighborhoods, because these owners stay in the homes until they’re sold rather being evicted and leaving an empty house behind.

Make no mistake: California’s long journey into a financial meltdown is nowhere near its conclusion, economists say.

They foresee prolonged trouble for the state economy and government revenues. At best, said Los Angeles economist Chris Thornberg, “The worst is behind us.” He added, “We have years yet of dealing with this.”

Like everything about the foreclosure crisis, even explaining a sense of improvement is open to interpretation. Thornberg said a fall in California foreclosure starts shows only that banks are taking longer to deal with late mortgage payments.

Jeff Michael, director of the Business Forecasting Center at the University of the Pacific, said simply, “This suggests we’ve reached the point where the number moving into delinquency equals the number moving out.”

Even that might be declared victory. More people are moving out of delinquency through short sales – selling their homes for less than they owe. And despite criticism of government loan modification efforts, the U.S. Treasury Department reported this week that 5,400 homeowners in the eight-county Sacramento region received permanent loan modifications since December 2009. Regionally, banks foreclosed on 4,300 more in the first quarter of 2010.

Any slowdown of last year’s frightful rise in delinquencies, said Michael, “indicates we’re close to a peak.”

The state still has a long way to go before it regains a healthy economy, 6 percent unemployment and a budget in the black, Thornberg and Michael agreed Wednesday. But for once, California is falling off lists of the worst performers.

Eventually, the supply of distressed properties will simply be exhausted, Michael said, adding, “The fire will burn itself out for lack of fuel.”