Investor overlay refers to additional criteria imposed by investors when purchasing mortgage loans in the secondary market, beyond standard government underwriting guidelines from agencies like Fannie Mae or Freddie Mac. These overlays, typically stricter, serve as an extra layer of risk management, allowing investors to mitigate potential losses. Investors, including banks and mortgage-backed securities entities, use these overlays to tailor the risk profiles of the loans they acquire from primary lenders, enhancing their investment security.