investors - pensions - etc. - buy the debt (MBS) paper that is issued by F and F based on the assets (original mortgages) held by F and F
F and F can not sell off the mortgages as the MBS paper is directly using them -0- i.e. MBS paper is backed directly by a specific pool of mortgages and the holders of FNMA paper get paid the interest and principal as its paid off (typically 7 -8 year duration)