Fannie Mae was charted by the US Congress in 1938 as part of the New Deal. Fannie’s cousin Freddie Mac was created in 1970. Both do the same thing: buy mortgages from lenders, package them into bundles (pools) of loans and then sell them into the secondary market as mortgage-backed securities (MBSs).

Until Fannie and Freddie came along, mortgage lending was done, almost exclusively, by savings & loans. A small, local S&L fits a certain romantic vision of banking (picture Jimmy Stewart’s bank in It’s a Wonderful Life), but it’s not a very efficient source of money for mortgages.

For one thing, it can only lend the money it has on deposit (“Gosh, we’d love to finance that home you want to buy…come back at the end of the summer when Farmer Bob sells his corn.”). For another, once an S&L makes a loan, its money is tied up in that loan.

Fannie and Freddie gave S&Ls, banks and other types of lending institutions a steady source of liquidity. A lender can fund a mortgage this month, sell the loan next month and free up their money to lend again. This modern mortgage marketplace makes for a steady flow of money from investors on Wall Street to mortgage lenders like us to lend to borrowers like you.