Federal Agricultural Mortgage Corporation:

Underwriting Standards Issues Facing the New Secondary Market

RCED-89-106BR, May 5, 1989

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In response to a congressional request, GAO reviewed the Federal Agricultural Mortgage Corporation (FAMC), focusing on: (1) underwriting standards for secondary markets; (2) provisions of the Agricultural Credit Act of 1987 relating to FAMC underwriting standards; and (3) key issues FAMC faces in developing underwriting standards.

GAO found that: (1) although FAMC provides a secondary market for agricultural real estate loans, no body of underwriting standards will exist until the market becomes fully operational in late 1989; (2) currently, only limited underwriting standards exist for small, private regional markets in major agricultural states; (3) the categories of underwriting standards were for forming loan pools, providing loan pool covenants, providing assurances of scheduled payments, registering securities and disclosing related information, ensuring poolers' qualification and certification, determining loan and pool documentation, providing for administrative services and review of lender and pooler performance, and providing criteria for property appraisals; (4) although the act addressed all categories to some degree, it left much of the necessary detail for FAMC to define in its regulations; and (5) in developing its underwriting standards, FAMC faces such key issues as geographical and crop diversity in pool loans, real estate appraisals, risks, securities registration and disclosure provisions, and rural housing provisions.