First the Binge, Then the Hangover

(Bloomberg) -- "The housing market's woes are beginning to infect the U.S. economy."

'``The uncertainties about the outlook have increased somewhat in recent weeks,'' Bernanke told Congress. ``The correction in the housing market could turn out to be more severe than we currently expect. We could yet see greater spillover from the weakness in housing to employment and consumer spending than has occurred thus far.'''

"Mortgage Lenders Network USA Inc., Ownit Mortgage Solutions LLC, People's Choice Financial Corp. and ResMae Mortgage Corp. have all gone bankrupt in recent months. Lennar Corp., the largest U.S. homebuilder, this week abandoned its 2007 profit goal after fiscal first-quarter earnings plummeted 73 percent. The Federal Bureau of Investigation is checking Beazer Homes USA Inc. for possible mortgage fraud."

"The hangover from that borrowing binge is beginning to hurt."

'``Interest-Only Mortgage Payments and Payment-Option ARMs -- Are They for You?'' asks the U.S. Federal Reserve in a November brochure on its Web site."

"The answer should have been a resounding ``No.'' Instead, cash-strapped Americans embraced loans offering low initial payments, praying that rising house prices would build a refinancing buffer before the monthly rates become unaffordable."

"All four legs of the U.S. housing market are wobbling precariously. The mortgage lenders who funded the boom are going bust or shutting up shop. The homebuilders who slapped together the bricks and mortar are seeing their earnings plummet. The financial alchemy used to repackage home loans into tradable securities is starting to unravel. "

"And the consumers seduced into what the Fed pamphlet calls the ``American dream'' of home ownership are becoming more fearful about the future as real-estate values start to stumble."

"American Nightmare?"