Key to the federal government’s plan to overhaul the country’s housing finance system are proposals that would replace public capital with private funding, and level the playing field between the two in an effort to make private options more appealing.

To any free market advocate, these basic principles outlined by the Obama administration last week must surely be taken as a step in the right direction. The overarching idea of replacing government treasure with private cash is something we can almost always get behind.

But we fear that in the process of reworking a decades-old housing finance system badly in need of an overhaul, government policymakers may be running the risk of throwing the baby out with the bathwater.

A key provision in the latest plan would involve raising service prices and guarantee fees at Fannie Mae and Freddie Mac to more closely resemble their private competitors. The idea is that if both sides cost roughly the same amount, then consumers will more readily opt for private options. More private business, after a while, means prices come down across the board as volume increases.

Again, this sounds fine in theory, but in practice there’s a huge risk being taken in making housing finance – even in the short term – more expensive.

The reason Fannie, Freddie and the FHA ultimately end up involved in 85 percent (or more) of this country’s housing transactions is precisely because they’re cheaper than the alternative. Without them, there might be no options for already strapped homebuyers whatsoever.

In a perfect world, the solution then would not be to make government options more expensive, but rather to take steps to make private options cheaper. As noted above, as economies of scale improve (if they improve) and people start buying more homes with private financing, it stands to reason that costs would come down. But the world is imperfect, and are we willing to inject several more years of pain into the crippled housing market waiting for this to happen?

The reason private options are more expensive than their federal counterparts, as they currently stand, is one of risk. Investors won’t sniff mortgage-backed products without some kind of guarantee, wary as they are of still shaky values and a frustratingly anemic job market. And so those all-important guarantees – the ones that ultimately make the risks worth taking – get more expensive.

There is a perception – justified or not – that U.S. mortgages are still, and will continue to be, inherently risky objects. Nobody, from neighborhood lenders to Wall Street investors, seems willing to take any risk on the housing market – except Fannie and Freddie.

And those risks have cost them, and us, dearly – $150 billion, and counting. Expecting any private entity to step in and assume that level of risk is asking far too much.

So leveling the playing field between the GSEs and private industry is a solution that we fear puts the cart before the horse.

Focusing on expenses and fees is not the answer. Instead, we need a policy focused first on re-making the housing market into something worth taking a risk on. This is accomplished only when a robust and varied housing system is created that no longer stigmatizes renting, one that offers entry to low-income families and first-time buyers as easily as it affords access to experienced investors and high-worth individuals. We need to rebuild faith in a housing market that used to symbolize so much more than a roof over our heads.

Only then should our attention be focused on shuffling the money around.