After eight years of exceptional housing price appreciation, we are experiencing a necessary housing correction. The housing market remains an economic headwind, and the Bush administration and Congress know that homeowners are feeling stress as housing and mortgage markets go through this correction.

Leaders at both ends of Pennsylvania Avenue are constantly examining approaches to prevent avoidable foreclosures. Last month, the Senate Banking Committee took a very important step to help more homeowners by passing a bill that creates a new regulator for Fannie Mae and Freddie Mac, the two Government Sponsored Enterprises (GSEs) that are the largest sources of housing finance. We have long pursued strong GSE reform, to ensure that the overseer of these two companies has powers comparable to other financial regulators. The most significant component of the Banking Committee’s housing bill is its creation of just such a world-class financial regulator to oversee the GSEs’ operations and provide confidence to the housing markets.

Committee Chairman Chris Dodd (D-Conn.) and ranking member Richard Shelby (R-Ala.) worked hard to move GSE reform through their committee; in the House, Financial Services Chairman Barney Frank (D-Mass.) and ranking member Spencer Bachus (R-Ala.) led the effort last year. We will continue to work with both chambers to complete this work soon.

Since the housing downturn began, the administration has taken aggressive actions to help at-risk homeowners. Through expansion of the FHASecure program, HUD has helped more than 220,000 struggling homeowners refinance into affordable long-term mortgages, and we expect that total to reach about a half-million by year’s end. The HOPE NOW Alliance has reported that nearly 1.6 million homeowners have received mortgage assistance to help them stay in their homes since last July. That progress continues; HOPE NOW reported that homeowners received a record number of workouts during April, including long-term loan modifications and repayment plans.

In the simplest of terms, the housing market has slowed due to excess inventory and the reduced availability of mortgage finance. These two factors are working in tandem; we cannot reduce the inventory unless homebuyers can secure a mortgage. And the price of that mortgage will affect how many buyers come into the market and when. The secondary mortgage market has played an innovative and vital role in providing affordable mortgages in the past, but reduced investor confidence leads to higher mortgage rates.

Fannie Mae and Freddie Mac — through their purchases and their credit guarantees — are by far the most influential players in expanding mortgage credit availability and enhancing liquidity in the mortgage market. A strengthened regulator for Fannie and Freddie will help support investor confidence, and be a positive step toward increasing the availability of mortgages for Americans who want to buy a new home, or refinance their current one.

Together, Fannie and Freddie’s market share has grown substantially from 46 percent of all new mortgages in the second quarter of 2007 to nearly 70 percent in the first quarter of 2008. Because of the GSE guarantee, mortgage securities are more attractive to investors around the world, investors who are then more willing to purchase mortgage securities and finance new mortgages. It has never been more critical that markets have confidence in how Fannie Mae and Freddie Mac are overseen and regulated.

Fannie and Freddie have great potential to improve the affordability of mortgages and ensure mortgage credit remains available during times of stress elsewhere in the mortgage market. They also have the potential — if not effectively regulated — to put the financial system at great risk. Creating a strong independent regulator will help ensure that the GSEs achieve their home ownership mission while operating safely and soundly.

GSE regulatory reform is a very real tool to ease the housing downturn, to help struggling homeowners stay in their homes and to provide options for new buyers. If we expect the GSEs to live up to their mission and enhance mortgage market liquidity, we must demand a regulatory structure that is appropriate for their size and the risk that it entails.

The time to create a world-class regulator for the GSEs is now. The House has passed a reform bill that is a good start. The Senate Banking Committee has moved forward with a version that is stronger in important ways. Now, it is time to complete the job and I look forward to working with Congress to get strong GSE reform signed into law this year.

GSE reform is an essential part of our efforts to limit the impact of the housing downturn on the rest of the economy without impeding its necessary completion. While it will take time to work through the housing correction, greater confidence in the supervision of our two largest mortgage-financing entities is a critical step in the right direction.

Paulson is secretary of the treasury.