Issues Surrounding Underwriting Standards Developed by the Federal Agricultural Mortgage Corporation

T-RCED-89-62: Published: Sep 12, 1989. Publicly Released: Sep 12, 1989.

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GAO reviewed the Federal Agricultural Mortgage Corporation's (FAMC) underwriting standards for secondary markets. GAO found that: (1) FAMC did not define some key terms and concepts and did not specify accounting practices to be used in calculating financial ratios and preparing financial statements; (2) some standards did not place limitations on the amount of loan exceptions allowed; (3) FAMC should evaluate the potential effects of its standards and financial ratios; (4) standardized market operating agreements between a lender and pooler could determine who bears the ultimate risk in the market; (5) FAMC should examine the potential implications of differing regulatory approaches on market participants; (6) the standards may allow poolers to bypass the geographic diversification requirement; (7) additional evaluation was necessary to ensure that FAMC appraisal standards were adequate; and (8) FAMC rural housing standards were inadequate.

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