The Federal National Mortgage Association commonly known as Fannie Mae, is a stockholder-owned corporation chartered by Congress in 1968 as a government-sponsored enterprise (GSE), but founded in 1938 during the Great Depression.
The corporation's purpose is to purchase and securitize mortgages in order to ensure that funds are consistently available to the institutions that lend money to home buyers. In basic terms, Fannie and Freddie buy the loans from the banks that made them, so the banks can re-lend out the money to the next person. The banks keep the fees they charge to make the loans and Fannie Mae or Freddie Mac now become the creditor. They will sometimes sell the loans again to a third party to replenish their own capital reserves.
On September 7, 2008, James Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that Fannie Mae and Freddie Mac were being placed into conservatorship of the FHFA. The action is "one of the most sweeping government interventions in private financial markets in decades". As of 2008, Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) owned or guaranteed about half of America's $12 trillion mortgage market.
Everyone in America can have a chance to own a home, but it should only happen at the point at which they become a viable buyer. This keeps expansion of the housing market at a much more conservative but sustainable pace. When there is interference in the market process, interference like these two institutions have done, then it seriously distorts the marketplace and causes volatility, bubbles and severe economic consequences.
Capitalism and social engineering do not and cannot go hand in hand. The market place will expand as long as it makes sense. Artificially expanding it using these types of entities only contributes to long and painful corrections.
Fannie Mae and Freddie Mac are part of a larger system of government agencies, policies and programs that have been the main contributor of huge rises and falls in the housing market. These policy programs ultimately created an ever growing disaster that exchanged short term gain for long term pain.
For more history and detail, Wikipedia.