Although subprime defaults are rising in Florida and the West Coast, a market correction is under way and Congress should leave it to regulators and the mortgage industry to help troubled subprime borrowers, according to a top housing regulator."Between the regulators, financial institutions, mortgage servicers, and the brokers, I think it can be worked out," James Lockhart, director of the Office of Federal Housing Enterprise Oversight, told reporters. "There is going to be some pain." And the correction will be "drawn out" as the resets on adjustable-rate subprime mortgages take effect over the next two years. But the best way to address this problem is "not to overreact, and not cause an unnecessary credit crunch that would end up just hurting the people you are trying to help," Mr. Lockhart said. Until recently, subprime defaults were concentrated in the Rust Belt states and the hurricane-affected states -- principally Louisiana and Mississippi. "We are beginning to see rapid growth in the West Coast and Florida," the OFHEO director told an Independent Community Bankers of America meeting in Washington.

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