Short version: Fannie Mae and Freddie Mac were originally chartered by the US federal government to create the mortgage-backed security market back in the 30s. In 1968 they were privatized. They kept mortgage rates very low, in large part because the market generally assumed that the guarantees provided by the FMs would be backed by the federal government, although officially both the US government and the FMs said this was not true. Low mortgage rates increased demand for buying housing, which led to the housing bubble. The FMs were vastly overextended and under-reserved by 2008, when the bubble was bursting. The feds at this point took conservatorship of the FMs, thereby proving that yep, the feds were going to bail out FMs if they went belly-up.

I ranted about them extensively here: http://rowyn.livejournal.com/298175.html , if you're curious about the longer version. :)