The plan includes 49 recommended legislative and administrative reforms, stating that privatizing the two major companies -- which back more than half of the country's mortgages -- is the "last unfinished business of the financial crisis" in 2008.
"It is, after 11 years, time to bring the conservatorships to an end," the plan states, adding that doing so is a "critical step" to ending government influence over the housing market.
Under the plan, both Fannie Mae and Freddie Mac would revert to the private sector once the Federal Housing Finance Agency determines they can "operate safely and soundly without posing an undue systemic risk."
The Treasury's plan would also allow the firms to retain more earnings and expand their capital buffers, but they would be required to pay an "appropriately priced periodic commitment fee" for continued government protection.
Additionally, the Treasury would seek to "level the playing field" and promote private-sector competition for the two firms in the housing finance system.
"Through the comprehensive reforms proposed by this plan, Americans will continue to realize their dream of buying a home, and they will be able to sleep soundly in that home knowing that they are protected from having to ever again rescue mortgage giants like Fanny Mae and Freddie Mac," he said via Twitter.
The plan, however, was quick to come under attack by Democrats who say it will only make homeownership more difficult.
"President Trump's housing plan will make mortgages more expensive and harder to get," Sen. Sherrod Brown, D-Ohio, said in a statement. "I'm urging the president: Make it easier for working people to buy or rent their homes, not harder."
Sen. Mike Crapo, R-Idaho, said he supports the president's plan, stating the housing finance system should be fixed through legislation.
"Fannie Mae and Freddie Mac contributed to the housing bubble and subsequent crash and are too big to fail," the chairman of the U.S. Senate Committee on Banking, Housing and Urban Affairs said in a statement. "Eleven years after being bailed out and put into conservatorship, it is time to make the hard decisions and strengthen our housing finance system."
In March, the Government Accountability Office warned that Fannie Mae, Freddie Mac and other government agencies are exposing taxpayers to potential losses of trillions of dollars.
Shortly afterward, President Donald Trump signed a memo calling on the Treasury and Housing and Urban Development departments to end the conservatorship of Fannie Mae and Freddie Mac after the government took control of them during the 2008 financial crisis.