The stocks of Freddie Mac (FMCC) and Fannie Mae (FNMA) are once again surging amid new signs that the Trump administration could be interested in loosening the government’s grip on the US mortgage giants.

The speculation got a boost last week when US Treasury Secretary Scott Bessent appeared to suggest on a podcast called "All In" that the government’s stakes in Fannie and Freddie could land in a new US sovereign wealth fund already authorized by President Trump.

“Government has a big stake in Fannie Mae and Freddie Mac… where does that go?” Bessent said when asked about the sovereign wealth fund, without offering further detail.U.S. Secretary of the Treasury Scott Bessent. REUTERS/Evelyn Hockstein/File Photo·Reuters / Reuters

The Wall Street Journal also reported this past weekend that the Trump administration has in fact contemplated an executive order that might include studying the privatization of Fannie and Freddie.

A proposal has been shown to the administration, according to the Journal, outlining how Treasury’s ownership of the mortgage giants could be moved to the sovereign wealth fund.

The stocks of Freddie and Fannie — semi-acronyms for Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association — rose more than 8% Monday.

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The stocks have each jumped over 350% since Trump’s election win on investor optimism about taking the giants private.

The new speculation comes as the president's pick to lead the overseer of the mortgage giants, Federal Housing Finance Agency (FHFA) Director William Pulte, has already replaced the boards of each government-sponsored institution and laid off dozens of FHFA employees.

Pulte appointed himself as chairman of both Fannie and Freddie.

Freddie Mac and Fannie Mae both play a central role in the US housing market by purchasing mortgages from lenders and repackaging them as securities. Both fell under government control during the 2008 financial crisis as mortgage defaults soared.

Some prominent Wall Street investors, including Bill Ackman, long ago wagered that the companies would eventually be returned to private control, doing so by purchasing stock in Fannie and Freddie.

Investors hoped the transition would happen during the first Trump administration, only to see that effort fizzle. Now Ackman and others believe a second Trump administration can get it done.

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The argument for doing it is that selling the government’s stakes in the companies could generate billions that could be used to reduce the deficit and return money to taxpayers or even be added to a US sovereign wealth fund.Bill Ackman, CEO of Pershing Square Capital, speaks at the Wall Street Journal Digital Conference in Laguna Beach, California, U.S., October 17, 2017. REUTERS/Mike Blake·REUTERS / Reuters

The argument against it is that it could affect access to credit in the housing market, which relies on Fannie and Freddie to fund 30-year mortgages, and that the giants may not be as successful on their own.

"I think they are playing with fire here," Chris Whalen, chairman of Whalen Global Advisors, told Yahoo Finance in December.

Earlier this month, Stifel CEO Ronald Kruszewski argued in a Financial Times op-ed that integrating Fannie and Freddie into a sovereign wealth fund would be one way the government could provide continued support.

If executed well, Fannie and Freddie could generate $30 billion in annual income that largely could be reinvested in a sovereign wealth fund after both institutions are adequately capitalized.

"This combination could pave the way for a $1tn sovereign wealth fund by 2040," Kruszewski wrote.

Mark Calabria, FHFA head during the first Trump administration, told Yahoo Finance at the end of last year that he put the odds of such a development happening within the next four years at 70%.

He also said "there's zero chance" it will happen in 2025.

David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.

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