The U.S. Treasury is set to release a report today on what went wrong in the collapse of the subprime mortgage market last year and provide initial indications of how the country’s financial regulatory framework should be revamped, according to sources familiar with the announcement.

The report, which is the result of a seven-month effort by the President’s Working Group on Financial Markets, will signal a need for greater transparency and other reforms to prevent the kind of sudden downturn that has struck credit markets in recent months — including the way mortgage lenders package and resell loans on Wall Street.

Abrupt dislocations in those markets have triggered a wider slowdown in the U.S. economy and mounting predictions of a recession.

Specific recommendations from Treasury are expected at a later date. These could have a sweeping impact on major segments of Wall Street, from the way mortgages are securitized to the role of credit-rating firms, which evaluate and give a score to such securities.

The Working Group’s report is especially significant because it is a collaboration of the government’s top economic policymakers, including Treasury Secretary Henry M. Paulson Jr., Federal Reserve Chairman Ben S. Bernanke and Securities and Exchange Commission Chairman Christopher Cox.

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