Federal Agricultural Mortgage Corporation:

Secondary Market Development Slow and Future Uncertain

RCED-91-181: Published: Sep 10, 1991. Publicly Released: Sep 10, 1991.

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Pursuant to a congressional request, GAO provided information on the Federal Agricultural Mortgage Corporation's (Farmer Mac) Farmer Mac I program to promote the development of a secondary market for agricultural real estate and rural housing loans to help make additional long-term credit available to farmers, ranchers, and rural homeowners, focusing on: (1) Farmer Mac's efforts to establish the basis for the market; (2) factors that have constrained market development; and (3) the markets' effects on agricultural credit.

GAO found that: (1) Farmer Mac completed the required steps to establish the basis for the secondary market; (2) few of the 46 financial institutions eligible to apply for certification as Farmer Mac poolers plan to apply; (3) as of June 28, 1991, Farmer Mac had received applications from only three potential poolers and had certified two of them, but neither certified pooler had issued any Farmer Mac guaranteed securities; (4) potential poolers are reluctant to participate in the program because they are concerned that the program may not generate sufficient loan volume to justify their commitment to the program or to support a viable secondary market, since the overall demand for agricultural credit has declined, the borrowers may not find the interest rates and terms on loans originated for sale competitive, and new regulatory constraints make participation less advantageous than anticipated; (5) originators noted that agricultural lenders lack incentive to participate in a secondary market at this time, since they have sufficient funds to lend; (6) Farmer Mac is developing a new approach to the Farmer Mac I program designed to increase participation and stimulate secondary market activity in which it would operate as a portfolio manager as well as a guarantor; (7) although Farmer Mac has not guaranteed any securities under its original program, some agricultural lenders maintain that the secondary market has had a limited effect on agricultural credit; and (8) several developments associated with Farmer Mac could help standardize agricultural lending practices.

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