Most of the money that is made available for home loans comes from three major lending institutions:                      

• Fannie Mae: Federal National Mortgage Association (FNMA)                      
• Freddie Mac: Federal Home Loan Mortgage Corporation (FHLMC), and
• Ginnie Mae Government National Mortgage Association (GNMA)
                             

As a borrower, you apply for a home loan through a mortgage broker or banker. Once your mortgage professional completes all required processing and verifications, he decides whether you qualify for a loan. After you obtain financing for the purchase of a home, you begin making monthly mortgage payments. 

Your mortgage loan may be packaged into a "pool" with several other loans and sold off to Fannie Mae, Freddie Mac, or Ginnie Mae. (Some mortgage companies don't sell directly to those major investors, but sell their loans to the wholesalers, who then in turn sell it to one of the big three institutions). Once this happens, it frees up more money in a portfolio. This gives the mortgage lender the necessary resources to make additional loans to other homebuyers. 

Once your loan is sold off, your mortgage professional isn’t the loan owner anymore. Instead, he is the loan servicer. (This means that he receives a monthly fee from Fannie Mae, Freddie Mac, or Ginnie Mae for processing your mortgage payments.) Don’t be surprised if over time your home loan gets transferred from one mortgage servicer to another. They aren't selling your loan again, only the right to service it.
  

Once Freddie Mac, Ginnie Mae, and Fannie Mae purchase loan pools, they break the packages down into smaller ownership parcels called "mortgage-backed securities” which are Bonds. Each security (or bond) represents a small ownership interest in the pool of loans, of which your loan is only one small part. Because the investment risk is diversified, mortgage-backed securities are a very safe financial investment. 

Stocks and bonds, including mortgage-backed securities are sold on Wall Street to institutions or individuals who are looking for exactly this type of investment. By selling the bonds, Ginnie Mae, Freddie Mac, and Fannie Mae obtain new funds, with which to buy new pools of loans (so mortgage lenders can get more money to lend to their new borrowers).
  

So why not just bypass the "middle man" and get your home loan directly from one of the big three lending institutions? Because Fannie Mae, Freddie Mac, or Ginnie Mae are Quasi-Government agencies that were charted by the federal government and they are not allowed to deal directly with consumers. 

Besides, many of today’s mortgage products offered by your local mortgage brokers are not provided by the Quasi-Agencies. Many mortgage programs and products are provided by wholesalers who do the same things the Quasi-Agencies do: they sell mortgage-backed securities on the bond market. Qualification standards are different: the wholesalers can sometimes provide financing when Fannie Mae, Freddie Mac, and Ginnie Mae will not. 

What’s more, mortgage brokers know the areas of specialty of various wholesale lenders. They can hand-pick the product and wholesaler (from a pool of hundreds of them) that offers the best deal for your unique circumstances. (Also, if your loan gets declined for whatever reason, you're not necessary out of luck: they can simply repackage it and submit it to another wholesale lender.)