To sum it all up; Fannie Mae buys the mortgages on the secondary market, sells those mortgages in the form of securities to investors, which allows lenders to continue loaning money over and over again.

Since Fannie Mae is one of the two (the other being Federal Home Loan Mortgage Corporation, or FHLMC, also refered to as Freddie Mac) largest purchasers of mortgage loans in the secondary mortgage market, it's underwriting and product guidelines are widely accepted in the mortgage loan industry. Even in the world of non-conforming loans (loans that are not eligible to be sold to FNMA/FHLMC, usually due to the loan amount being larger than that allowed by FNMA/FHLMC), its underwriting criteria are still closely followed.

Mortgage loans that are eligible to be sold to FNMA are called conforming loans. Because lender banks can resell these loans to FNMA and recoup their investments immediately after closing, rather than having to wait 30 years to recover their investments, lenders are able to offer lower interest rates for conforming loan products. In addition, since every financial institution, regardless of its financial strength, can sell conforming loans to FNMA and immediately recoup its investments, smaller lenders with limited capital are able to compete with large international banks in offering loans in the primary market, thereby giving conforming loan borrowers even more competitive rates. Non-conforming loan products carry higher interest rates because banks cannot sell these loans to Fannie Mae and must sell to smaller investors or keep in their own investment portfolios for the length of the loan terms. Therefore, Fannie Mae plays an important role in every mortgagor's loan transaction.

Because Fannie Mae was formed with the sole purpose of promoting homeownership in the United States by creating a healthy supply of mortgage funds, all of its underwriting guidelines are designed to benefit the average homeowners, and to keep the wealthy and the commercial sector from taking advantage of its functions. Amongst its many criteria, FNMA stipulates that the property must be for residential use. It also dictates the maximum loan amounts allowed. Other criteria that has to be met include percent of downpayment in relation to purchase price, borrower's capability to repay loan, cash reserves, the type of eligible properties, borrower's credit worthiness, and other aspects of the loan file.

Fannie Mae is also credited with developing two automated underwriting engines that revolutionized the underwriting process of conforming loans. Desktop Underwriter (DU) and Desktop Originator (DO) computerized the loan risk assessment process and are used by every conforming lender in the primary market.