Public builder stocks continued their Tuesday swoon into Wednesday as investors watched the political football of tax carry-backs for home builders punted back and forth between the Senate and the House and more signs appeared that the U.S. economy is headed into a deep recession.

The S&P Home Builder ETF (AMEX:XHB) closed down 4.26% to $22 on Wednesday on top of a 2.96% loss on Tuesday. The entire public builder group was down, with Beazer (NYSE:BZH), which fell 9.1% to $9.29, the biggest loser after dropping 6.1% on Tuesday. Hovnanian was not far behind with a loss of 8.36% to $10.96.

Standard Pacific (NYSE:SPF), which had more than tripled since its low on Jan. 11, closed down 8.26% at $5.22 on lighter than normal volume after losing 6.8% on Tuesday. The stock has been subject to heavy short positions since the company last year announced it would lend corporate shares to lenders so they could profit from the steep decline in the company's stock, but the number of shares held short fell from 44.5 million to 38.7 million between mid-March and the end of the month, a drop of 13%.

M/I Homes (NYSE:MHO) took an 8.5% hit to $17.22; Lennar (NYSE:LEN) dropped 7.1% to $18.58, Meritage (NYSE;MTH) fell 6.75% to $19.49; Pulte (NYSE:PHM) was down 6.2% to $14.01 and Brookfield (NYSE:SHS), which held its ground during Tuesday's plunge, joined the group with a 7.14% plunge to $15.61.

Among the rest of the group, losses ranged from 5.2% at Centex (NYSE:CTX) to $23.70 down to 3% at Ryland (NYSE:RYL), which closed at $33.49.

The rally that began in January was halted on Tuesday, as the White House said it would not support the Senate housing relief bill and the Realtors reported the worst performance in the Pending Home Sales Index since it was created in 2001. Wednesday, reports circulated that the House, which is also considering a housing relief bill, was not interested in tax breaks for builders similar to those in the Senate proposal. Meantime, the minutes of the Federal Reserve Open Market Committee from March revealed that several members were concerned that the U.S. recession could be wider and deeper than first thought. The International Monetary Fund on Wednesday proclaimed that the U.S. economny is in recession that it likely to kick off a slowdown in the global economy.