The state of the mortgage industry is not looking bright, neither is the outlook for homeowners. While many mortgage lenders are attempting to avoid bankruptcy, many homeowners are trying to avoid foreclosure. Recently, American Home Mortgage filed for bankruptcy protection; so far Countrywide Financial is attempting to stay afloat. Several homeowners are in a similar situation; they are already in default or close to foreclosure.

Since June, foreclosure filings have gone up 9 percent, an increase of 93 percent during the same period last year. There were approximately 180,000 filings of auction sales notices, default notices, and bank repossessions in July. Overall nationally, 573,397 homes fell under these foreclosure categories during the first six months of the year. Also, during the same period, homes facing foreclosures jumped nearly 60 percent.

The recent crises in the stock market are mainly due to the subprime mortgage defaults. In the past five years, during the boom years of the housing market, subprime mortgages and other risky home loans were doled out to borrowers without proper credit consideration by mortgage lenders.

The current atmosphere has generated government action with the Federal Reserve injecting more than $68 billion into the banking industry to generate liquidity and resurrect voter confidence in the housing, mortgage, and stock market. However, the action taken last week seemed to have had a temporary effect in the recovery of the market from further downslide.

Today, the market teetered, as investors awaited the Fed’s response to the growing credit crunch produced by subprime loans. Some investors want the Fed to lower the federal fund rate, while others believe the economy hasn’t reached a point where a rate cut would be warranted as consumers can still get a mortgage refinance to help reduce their increasing payments.

In addition, Congress may consider several actions to reinstate confidence into the mortgage market, including legislation aimed at reigning in the mortgage sector. Presidential candidate and Banking Committee chairman Senator Christopher Dodd (D-Conn) wants Bush to increase the limits on the mortgage portfolios held by Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac help promote homeownership in America by providing stability, liquidity, and affordability in the housing market. Since, the subprime mortgage contagion spread to Wall Street, it has been difficult to find buyers for the repackaged securities. Hence, if Fannie Mae and Freddie Mac lift their limits, they are able to absorb these risky mortgage securities.

The above action can possible lead to more market stability, investor confidence, and starve off a slowdown of the economy. While the Wall Street and government attempt to arrest the conversion of the mortgage whirlwind into a tornado, homeowners still remain at risk for losing their houses.