The Market is not returning to normal. Capitol One is closing its mortgage department with more layoffs threatened on Wall Street.

Hamid Varzi “LIVING ON DEBT MOUNTAIN

The U.S. economy, once the envy of the world, is now viewed across the globe with suspicion. America has become shackled by an immovable mountain of debt that endangers its prosperity and threatens to bring the rest of the world economy crashing down with it.

THE BUSINESS OF ECONOMIC SURVIVAL

Foreclosure filings up 93% this year
There were 179,599 foreclosures last month — one filing for every 693 households.

LOS ANGELES (AP) — Foreclosure filings rose 9 percent from June to July and surged 93 percent over the same period last year, with Nevada, Georgia and Michigan accounting for the highest foreclosure rates nationwide, a research firm said Tuesday…

Why is this happening. Richard B’s analysis appears in ALL SPIN ZONE:

When Democratic Party senators capitulated to the finance industry in assisting the GOP to pass the draconian bankruptcy bill two years ago (I’ve previously referred to the legislation as the Indentured Servitude Act of 2005), there were many warnings of problems for credit consumers on the horizon. No one listened. The bill passed anyway, and yes, nearly two years later I’m still upset about it.

In all of the hand wringing about the sub-prime mortgage market implosion negatively impacting financial markets in general (and homeowners tied to those mortgages, in particular) , not one pundit has mentioned the delayed impact of the bankruptcy bill.

There was a time in the recent past (pre-2005) when, after all else failed financially, a homeowner could at least save their home through the Chapter 7 process. It was a win-win, really, even if the mortgage lenders bitched about it a bit. The homeowner was given a bit of breathing room to get their financial house back in order, and the mortgage lender continued to receive payments. The bottom line is that mortgage lenders might have taken a bit of a hit (or had to transfer mortgage payment arrears to the back end of a mortgage), but the money continued to flow from the mortagee to the mortgager.

My gut feel is that at least some of the problems we’re currently seeing with home foreclosures stems from the onerous requirements of the bankruptcy bill. Today, it’s being reported that home foreclosures are hitting records everywhere:

DEAN BAKER on CommonDreams.org: Save Subprime Borrowers, Not Bloated Bankers

There is a simple and direct way in which the federal government can help out millions of moderate income families struggling to keep their homes. They can simply change the rules on foreclosure to allow moderate income homeowners the option to remain in their homes indefinitely as renters, paying the fair market rent.
This proposal would immediately give moderate income homeowners a guarantee that they would not be thrown out of the street because they cannot meet the terms of a predatory mortgage. It accomplishes this goal without requiring any elaborate new bureaucracy and without requiring a single dollar from the taxpayers. And this plan does not bail out the bankers, hedge funds, and other financial industry types who were speculating in mortgage debt.

Here’s how the plan works. Currently, if a homeowner is not able to make their mortgage payments, the holder of the mortgage can go to court to place the house in foreclosure. This means that if the homeowner is not able to come up with back payments on the mortgage, or work out an acceptable arrangement with the mortgage holder, the bank or financial institution that holds the mortgage retakes ownership of the house and can have the homeowner evicted.

Under this security of housing proposal, the foreclosure process would be changed so that the current homeowner would have the option to remain in their house as a renter paying the fair market rent. If a homeowner chose to go this route, the judge in the foreclosure proceeding would appoint an independent appraiser to determine the fair market rent for the house, in the same way that a bank hires an appraiser to determine the value of the house before issuing a mortgage.

The former homeowner could then remain in their home as a renter for as long as they liked. The rent would be adjusted at regular intervals in step with the change of other rents in the area. There could even be an appeal process in which either party could request that the judge get a second appraisal, at the expense of the person complaining about the original appraisal. This should ensure that the rent set for the house is fair. After the foreclosure, the mortgage holder would now own the house and be free to sell it to another person, but the former homeowner would still have the right to remain as a renter, regardless of who owned the house.

This program could be restricted to homes that cost less than the median house price for an area to ensure that high income homeowners do not take advantage of it. The program would also only apply to people who lived in their homes, not investors. In short, it is a very simple and low cost way to help moderate income homebuyers. It does not give them any windfalls, but it can ensure that they don’t end up being thrown out on the street.

LA TIMES: REFORMS PROPOSED IN CALIFORNIA: Activists to push new loan standards

With California facing its highest foreclosure rate in 20 years, consumer advocates are pressing the state Legislature to tighten standards used by lenders for approving loans and help consumers already in danger of losing their homes.

The state Senate Banking, Finance and Insurance Committee is holding a public hearing today on the mortgage meltdown, ensuing credit squeeze, their effect on California and what new laws are needed. This comes as the Calabasas-based giant Countrywide Financial Corp. and other lenders began layoffs and other lenders took action to cut back new loans they consider too risky.

This is the third hearing this year led by committee Chairman Michael Machado (D-Linden), who is backing a bill to require lenders to ensure home buyers can meet their monthly payments, even as rates increase in the future. But there’s more to do, he said.

HEADLINES: Credit crisis claims another bank

Debt crunch puts mega-buyouts in jeopardy

A MODERN FORM OF BANK RUNS IS ON THE WAY

FDIC IS NOT ENOUGH TO STOP BANK RUNS

STOCKS CONTINUE TO FALL DESPITE FED’S BANDAID

FORECLOSURES ALMOST DOUBLED LAST MONTH

Tomorrow, The Stopthesquueze.org website post my weekly newsletter with a more in depth look at these issues.