Washington scrambles for subprime answers

By Kevin Drawbaugh

WASHINGTON (Reuters) - With the subprime mortgage crisis fanning recession fears, Washington is scrambling to jump-start the U.S. economy and ease the blow of falling home prices and rising foreclosures.

The Federal Reserve is slashing interest rates and Congress is moving fast to complete a fiscal stimulus package likely to include steps to prop up the mortgage market and help save many Americans from being thrown out of their homes.

Emergency policy options, as well as the outlook for long-term reforms to the banking system, will feature in discussions with 20 top lawmakers and regulators scheduled to appear at the Reuters Regulation Summit that runs February 5-8.

As the markets swing sharply on each new subprime development, members of Congress and senior supervisors for the banks and Wall Street will meet with Reuters journalists in Washington D.C.

Among lawmakers being interviewed are Democrats Carl Levin of Michigan and Charles Schumer of New York, and Republican Charles Grassley of Iowa, all from the Senate, which is working to complete a multi-billion-dollar stimulus package to send to the White House by mid-February.

The package may include a provision to allow the Federal Housing Administration and housing finance giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) to back larger loans and let distressed borrowers refinance into more affordable mortgages.

Skepticism about such a move has been expressed by James Lockhart, director of the Office of Federal Housing Enterprise Oversight, which regulates Fannie and Freddie. Lockhart is also scheduled to take part in the Reuters summit.

The subprime crisis, more than any other recent troubles in the business world, such as the Enron collapse or the stock analyst scandal, is revealing the street-level dangers posed by long-festering problems at the core of the financial system.  Continued...