Obama, Paulson agree on restoring GSE confidence

WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson and Democratic presidential candidate Barack Obama agreed on Tuesday that Washington must restore confidence in mortgage finance giants Fannie Mae and Freddie Mac, Obama's spokesman said.

During a telephone conversation that covered challenges facing the U.S. economy and financial markets, the Democratic senator from Illinois expressed to Paulson the need to use new housing legislation to protect homeowners and not bail out shareholders or managers, Obama's Senate spokesman, Michael Ortiz, said in a statement.

"The two men agreed that Washington must restore confidence in Fannie Mae and Freddie Mac in a way that protects the taxpayer and our financial system, and that we must reform and modernize our regulatory structure to avoid these problems in the future and protect average Americans," Ortiz said.

They also agreed to stay in contact as important economic events unfold in the months ahead," he added.

A Treasury spokeswoman said earlier that Paulson would have no comment following the conversation.

(Reporting by David Lawder)