Have you ever heard anyone in the mortgage industry mention these names before? Did you ever wonder who these people were that had so much to say about whether or not you would qualify for a mortgage?

Well, Fannie, Freddie and Ginnie aren't people, they are institutions. They are the shortened names for Fannie Mae (FNMA-Federal National Mortgage Association), Freddie Mac (FHLMC -Federal Home Loan Mortgage Corporation) and Ginnie Mae (GNMA-Government National Mortgage Association). They are the big three, and they buy the majority of mortgages for all homes across the nation.

In the old days, if you wanted to buy a house, you met with a local banker who went to high school with your Daddy, and he assessed whether you were worth the risk to lend you the money. His decision was probably based on his personal assessment and some bank guidelines.

These days, you can talk to practically any mortgage lender, they verify your life history and you find yourself owning a home. But you rarely make your mortgage payment to that original lender after an interim period. That's because lenders make most of their money by selling your loan. And more often than not, whatever company you make your payment to doesn't own your loan. It is the "servicer" of that loan. It is called your servicer because it is simply servicing your loan for the institution that actually owns it.

What happens is your loan gets sold to another company that sells it to one of the big three, or sometimes the company you got your loan from originally sells it directly to one of the big three. Freddie, Fannie and Ginnie buy "pools" of loans. Loans quickly become "pooled" into groups of loans of similar size, interest rate and type. The servicer gets a monthly fee from the institution for servicing your loan and processing your payments. This fee is small (about 3/8 of a percent), but if your pool gets big enough, it can create a tidy sum of income when sold to Fannie, Freddie or Ginnie. There are companies that service billions of dollars of loans. You might have heard lately in the news that some of these servicing portfolios didn't perform. That's created a little bit of a headache lately in the mortgage world.

The entire system of mortgages (originators, brokers, banks) is designed to create these pools because so much income can be generated from servicing. When enough loans are made to create a pool, the company sells the loans to Freddie, Fannie or Ginnie, generating more income. This action in turn allows the company to make more loans, and so on and so forth. The whole process begins again.

Freddie, Fannie and Ginnie set underwriting guidelines for lenders to follow that will allow for lower risk loans. The foreclosures of late have caused these guidelines to become less lenient, and in general, more documentation is required to close a loan. The loans in the pools serviced have been reviewed to make sure they are compliant with the guidelines set forth.

So, now you know who Freddie, Fannie and Ginnie are. Mystery solved.