Federal Agricultural Mortgage Corporation:

Secondary Market Development and Risk Implications

RCED-90-118: Published: May 4, 1990. Publicly Released: May 4, 1990.

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Pursuant to a congressional request, GAO provided information on the development and implementation of the Federal Agricultural Mortgage Corporation (FAMC), a new secondary market for agricultural real estate and rural housing loans.

GAO found that: (1) secondary markets buy and sell mortgage loans or mortgage-backed securities, creating liquidity and allowing lenders to make additional loans or reuse funds; (2) secondary markets also provide lenders a mechanism for spreading financial risk; (3) secondary markets use underwriting to identify risks associated with financial instruments, assess the costs of covering those risks, or provide essential information that would allow others to assess the costs; (4) secondary markets use underwriting standards to limit risks and establish methods to ensure against losses; (5) there were 10 major categories of general underwriting standards; and (6) enabling legislation requirements provides FAMC with a number of issues to resolve as it develops and implements its underwriting standards.

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