Issues Surrounding a Secondary Market for Agricultural Real Estate Loans

T-RCED-87-29: Published: Jun 3, 1987. Publicly Released: Jun 3, 1987.

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Pursuant to a congressional request, GAO discussed its work involving a secondary market for agricultural real estate loans. GAO noted that the benefits of a secondary market include: (1) enhanced liquidity of financial instruments; (2) more moderate cyclical flows of capital; (3) improved regional flows of capital; (4) reduced regional differences in interest rates; and (5) regional portfolio diversification. GAO also noted that: (1) existing secondary agricultural loan markets are primarily regional and handle a relatively low volume of loans; (2) while the Farm Credit System (FCS) is generally a primary lender, it causes economic effects similar to a secondary market in that it enhances liquidity, reduces the effects of cyclical capital flows, and has enhanced regional capital flow and reduced regional interest-rate differences; and (3) a number of legislative proposals would create a national secondary market entity. GAO believes that any such legislative proposal should: (1) recognize that direct federal involvement in a secondary agricultural loan market would probably be necessary; (2) allow for the impact of a secondary market entity on FCS lenders and borrowers; (3) consider the possibility of establishing FCS as a national secondary market; and (4) ensure reasonable eligibility criteria for potential secondary-market loans.

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