The topic is too sensitive for most school systems to openly embrace its teaching. But we are dealing with a basic function here, and I think it is perfectly OK to give it a public airing. Sensitive or not, some straight talk can prevent a lot of difficulties down the line.

So I'll ask the question. And don't be embarrassed. It's a perfectly natural process to explore. Ready?Do you know where mortgages come from?

Banks and mortgage companies? Well, sure, they have a lot to do with the delivery. But haven't you ever wondered just how it is that your particular mortgage was conceived? Where it got those cute little points? Who decided how long its term should be? Whether it looked more like something from Grandpa's time or resembled the younger generation? All of the things that came before that magic moment when your lender could send it home with you?

If you can think about mortgages along those lines, you can begin to understand Fannie Mae, one of the big secondary market agencies whose actions - in the form of deciding what mortgages it will buy and sell - determine just what kinds of loans will be allowed to join the family.

In theory, lenders can make any kinds of loans they want. But in practice, it is the secondary market that creates most of the mortgage products from which consumers can choose. More than half of all mortgages are sold into the secondary market, and the willingness of those agencies to buy up a specific type of loan is just the kind of insurance that conservative lenders want when they ask themselves if innovative loans are viable.

If Fannie Mae decides it wants to get into, say, the 3 percent down business - as it did a few years back with its Flexible 97 product - then it won't take long for 3 percent down mortgages to become widely accepted and available, as they are today.

Its sheer size makes Fannie Mae a big wheel. The federally chartered, private corporation has nearly $400 billion in assets and an additional $700 billion or more in outstanding mortgage-backed securities. Under its charter, the maximum mortgage amount it can fund is limited, based on overall housing prices. The current conforming limit is $227,150.

The loan limit is in keeping with the corporation's mission to provide products and services that increase the availability of mortgage funds for low-, moderate- and middle-income Americans. And in 1994, Fannie Mae Chairman Jim Johnson pledged that the corporation would put $1 trillion in new money to work toward those goals by the end of the year 2000.

Many of the loan products that Fannie Mae offers do not spring to life full blown. Often they are developed at the community level and tested in limited markets through the company's 28 Partnership Offices, which serve individual cities, states or regions.

The Chicago Partnership office, opened in 1995 under the direction of Terry Young, gave birth to HouseChicago, a $10 billion, seven-year commitment to bring affordable loan programs to the city and especially to targeted redevelopment neighborhoods.

Working with Mayor Richard Daley, private lenders and community and nonprofit groups, Fannie Mae added a two-flat mortgage and a home improvement and renovation loan to its mix of nationally available mortgage products, to tailor HouseChicago to this area.

It also added an experimental version of the Flexible 97 loan, allowing for the entire 3 percent down payment to be a gift or grant.

"Rehab is a major focus for us, both gut rehabs and remodeling. We want to get more lenders here involved," Young said. He also wants to expand the availability of the HomeStyle Remodeler, which can be combined with a purchase mortgage for properties in need of renovation or used as a second mortgage to fund smaller repairs such as kitchen and bath remodeling.