Is the Fed Preparing the Public for a RE Bust?

Based on this article on CNN, is the Fed preparing the public for a bust of the housing bubble? But it's all OK because we all have nice "equity cushions" and we can absorb a decline in prices, right? But what about the cash-out refinancing craze (aka the "housing ATM")?

Some choice quotes:

"Though mortgage debt is rising, most Americans have built up so much equity in their homes that they could weather a price drop without serious harm, Federal Reserve Chairman Alan Greenspan said Monday."

"He also reiterated that he was concerned about the rapid growth in exotic home loans and that the apparent "froth" in many local housing markets was spilling over into mortgage markets."

""The dramatic increase in the prevalence of interest-only loans, as well as the introduction of other, more-exotic forms of adjustable-rate mortgages, are developments that bear close scrutiny," Greenspan said."

"He noted that, given the acceleration in recent years in buying and selling of second homes, it appeared that speculation was playing a larger role in recent home-price rises than in the past."

But Greenspan's own study shows that the vast majority of house owners have extracted equity thereby reducing their "equity cushion":

"In his remarks, Greenspan cited a study he co-authored with Fed staffer Jim Kennedy and was published separately on the Fed's Web site that found about four-fifths of the rise in mortgage debt resulted from people extracting their home equity."

""How significant and disruptive such adjustments turn out to be is an open question," Greenspan said, but the U.S. economy was flexible enough that "shocks should be largely absorbed by changes in prices, interest rates and exchange rates, rather than by wrenching declines in output and employment.""