Speaking before the U.S. Chamber of Commerce, Paulson said housing and mortgage-reform ideas circulating in Congress "are not ready for the starting gate."

The Bush administration supports legislation that would modernize the Federal Housing Administration and reform the Fannie Mae (NYSE:FNM-Q) and Freddie Mac (NYSE:FRE-W), Paulson told the audience.

"We must work to limit the impact of the housing downturn on the real economy without impeding the completion of the necessary housing correction," he said. "Regulators and policy makers are vigilant; we are not taking anything for granted."

He said U.S. capital markets are flexible and resilient. "I am certain we will work through this situation and go on to new heights as we always do," he said.

The Bush administration knows the housing market correction "was not only a precipitating cause but continues to be an underlying factor in our capital markets' stress," Paulson said. "Both are disrupting our economy right now."

The administration would pursue policies that don't slow down the housing correction, Paulson said, "yet also help avoid preventable foreclosures and unnecessary capital market turmoil.