Federal Agricultural Mortgage Corporation: Conditions May Slow Development of Secondary Markets

GAO discussed the Federal Agricultural Mortgage Corporation's (Farmer Mac) secondary mortgage programs to increase the availability of rural credit, focusing on: (1) Farmer Mac I, the secondary market program for agricultural real estate and rural housing loans; and (2) Farmer Mac II, the secondary market program for Farmers Home Administration (FmHA) guaranteed loans. GAO noted: (1) of the 46 financial institutions eligible as Farmer Mac I poolers, only 3 had applied; (2) since Farmer Mac had not been able to form any pools of loans under Farmer Mac II, it issued securities backed by individual loans; (3) factors constraining Farmer Mac I included concerns regarding insufficient loan volume, uncertainty about loan competitiveness, new regulatory constraints making participation less advantageous for poolers and originators, and the lack of lender incentives; (4) it was unclear whether the volume of FmHA-guaranteed loans would be large enough to support a market in securities backed by pools of those loans; (5) Farmer Mac II success rested on its ability to provide both a uniform infrastructure for selling FmHA-guaranteed loans and securities and guaranteed, timely payment of principal and interest to investors; (6) the public offering of unsecured debt by Farmer Mac did not guarantee increased participation in the two programs; and (7) it was too early to predict whether Farmer Mac initiatives to buy and hold loans in its own portfolio would induce lenders to sell loans or offer more competitive interest rates to borrowers.