Paulson Says Fannie, Freddie Need to Change

Such a proposal would be able to address the inherent conflicts between private ownership and public purpose that must be resolved to avoid the potential for another crisis in mortgage financing, Paulson said.

"With the knowledge of recent experience, we have a responsibility to begin work now on a long-term (government sponsored enterprises) structure which avoids the dangerous mix of policy and market distortions created by the former flawed GSE mode," he said.

Washington-based Fannie Mae and McLean, Va.-based Freddie Mac own or guarantee around half of the $10.6 trillion in U.S. outstanding home loan debt.