I came across a great article in the Wall Street Journal Online entitled Mortgagers’ Dual Roles Clash which discusses the difficult balance that Freddie Mac and Fannie Mae have since they are part government agency and part profit making business.

If you ever wondered how they work, here is an excellent quote from the article:

The basic deal has been this: Fannie and Freddie make big profits for shareholders and pay high salaries. Shareholders benefit because Fannie and Freddie borrow more heavily than other financial companies and more cheaply, because everyone who lends them money assumes — correctly — that the U.S. government stands behind their debt.

and here is why they receive the benefits:

In exchange for their borrowing advantages, Fannie and Freddie and their shareholders agree to promote affordable housing — even when it isn’t a great business — to be in the mortgage market when no one else wants to be, and to submit to regulation.

Take a read on Freddie and Fannie here, although he is pointing out the seemingly polar opposite goals of these organizations, it is a great read as to why they exist and why they do what they do.