I feel bad for the couple in a Wall Street Journal article published earlier this week. They're hardworking. They're well intentioned. And, as the Journal indicates, they find themselves having to choose between celebrating Christmas in their accustomed fashion and keeping their home out of foreclosure.

The couple is paying an absurd $2,454 a month for a Long Island home that's smaller than 1,200 feet. What they shouldn't have done, of course, was to subject themselves to an adjustable-rate mortgage, and then fail to make some payments in a timely manner -- thereby triggering delinquency fees -- and then take out home-equity loans, even if they were used for repairs to the house.

Naturally, the story is designed to tug at our heartstrings. And it does, even for consummate free marketers like me, as I watch subprime stupidity infest virtually our entire economy. I'd love to have operatives at Countrywide (NYSE:CFC), or the home-loan arm of Washington Mutual (NYSE:WM), clue us in to their intent in conjuring up that vast array of wholly inappropriate mortgage instruments that they foisted on the housing world. 

Hindsight analysis is, of course, 20-20. In terms of the future, the problem is multifaceted. As we move into 2008, the number of homeowners who -- unlike the couple portrayed -- are unable to stave off foreclosure will probably escalate dramatically. There will be several fallouts from that trend, not the least of which will be additions to the glut of houses on the market.

Furthermore, the mortgage market for would-be buyers is in a quagmire, with liquidity shrinking at the lenders and loan standards being tightened almost daily. Those two factors will probably continue to exacerbate the trend of softening existing-home sales and prevent some buyers -- especially many first-time shoppers -- from acquiring new homes from the likes of Pulte (NYSE:PHM), Ryland (NYSE:RYL), and D.R. Horton (NYSE:DHI).

The key here is that there doesn't appear to be any end in sight for those real estate credit woes. So Fools will keep avoiding the housing and mortgage sectors, while lowercase-f fools will continue to search for bargains there.

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Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He does welcome your questions or comments. Washington Mutual is an Income Investor recommendation. The Motley Fool has a custom-built disclosure policy