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That means that most "lenders" aren't really lending their own money, they're lending Fannie and Freddie's money.


Where Your Mortgage Check Ends Up : Thanks to the secondary mortgage market, your mortgage can go halfway around the world and fund still more home loans.

Fannie Mae (the Federal National Mortgage Assn.) and Freddie Mac (the Federal Home Loan Mortgage Corp.) help millions of home buyers across America obtain loans by tapping into Wall Street and the rest of the world's capital markets to raise money for mortgages.

Fannie, headquartered in Washington, and Freddie, based in McLean, Va., were created by Congress (Freddie in 1970 and Fannie in 1983), with the nearly identical missions of generating a steady supply of money for home loans at reasonable rates.

The two [now government-owned] companies, which earned $2.6 billion between them last year, are a powerful force in the home mortgage market. Yet despite their key role in putting buyers in houses, the two companies are little-known by the typical borrower.

Here's who Fannie Mae and Freddie Mac are and how they help home buyers:

The two companies make up a large part of the "secondary" mortgage market, so named because they do not enter the picture until the primary transaction between the home buyer and the "origination lender" is completed.

After the loan is made, Fannie or Freddie may buy the mortgage from the lender. Together, the two companies buy one of every five U.S. mortgages from the origination lenders, which provides the lenders with fresh cash to make more loans. (The remainder of the mortgages are made by S&Ls, banks and private investors who keep the loans in their portfolios.)

Fannie and Freddie then bundle thousands of the mortgages into tradable securities that are large enough--a $500 million agglomeration of individual loans is common--to attract investors such as U.S. life insurance companies, Japanese pension funds, Swiss money markets or the central bank of Zimbabwe.

The rise of the secondary market, which began in the early 1980s, has benefited consumers in a number of ways. Cheaper mortgage money is chief among them. Most estimates credit the companies with lowering interest charges to borrowers by up to a half of a percentage point.

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