Treasury Secretary Henry Paulson on Wednesday said Fannie Mae and Freddie Mac should be eliminated and replaced by private-sector mortgage guarantors regulated like utility companies.

"Establishing a public utility-like mortgage credit guarantor could be the best way to resolve the inherent conflict between public purpose and private gain," Paulson said. "Under a utility model, Congress would replace Fannie Mae and Freddie Mac with one or two private-sector entities. The entities would purchase and securitize mortgages with a credit guarantee backed by the federal government, and would not have investment portfolios."

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