updated 3/13/2007 1:16:11 PM ET 2007-03-13T17:16:11

The government is monitoring the distress in the subprime mortgage industry and believes the current situation is “manageable,” a high-level Treasury Department official said Monday.

The comments by Robert Steel, the Treasury undersecretary for domestic finance, came as concern mounted on Wall Street and elsewhere that a blowup of companies that make higher-risk home loans to consumers with poor credit or low incomes could spill over into other industries.

“We monitor the markets all the time, and are hopefully pretty aware of market conditions,” Steel told reporters in response to a question. “It seems to us that the situation is a manageable one, that we’re watching.”

Federal bank regulators, concerned about a spike in delinquencies and defaults on subprime home mortgages, earlier this month called on lenders to exercise caution in making the loans and to strictly evaluate borrowers’ ability to repay them. The regulators said the guidelines, if formally adopted by the agencies and followed by lending institutions, could result in fewer borrowers qualifying for subprime loans.

Stocks showed little movement on Wall Street Monday morning as further cracks appeared in the subprime lending sector. A warning from New Century Financial Corp. about its financial woes overshadowed merger news, which often gives a boost to enthusiasm in the stock market.

A liberal think tank said Monday that the federal government should take new steps to protect low-income homeowners at risk of foreclosure.

The Center for American Progress said the government should consider grants to expand mortgage aid and foreclosure prevention programs for families falling behind on their monthly payments. As many as 2.2 million families around the country could lose their homes to foreclosure in the coming years, according to a 2006 report by the Durham, N.C-based Center for Responsible Lending.

“Congress can’t wait for that many families to foreclose,” said Almas Sayeed, who wrote the report for the Center for American Progress. “The economic impacts for communities and for the country could be devastating.”

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