In 1970, the federal government authorized Fannie Mae to purchase conventional loans, i.e. those not insured by the FHA, VA, or FmHA, and created the federal home loan mortgage corporation (fhlmc), colloquially known as Freddie Mac, to compete with Fannie Mae and thus facilitate a more robust and efficient secondary mortgage market.
Fannie Mae and Freddie Mac were two government-sponsored enterprises that bought mortgages from banks, a process known as buying on the secondary market. They packaged these into mortgage-backed securities, and resell them to investors on Wall Street. The entire financial system depends on trust. The subprime mortgage crisis decimated it.