The Federal Agricultural Mortgage Corporation, commonly known as Farmer Mac, is a federal agency established in 1988 to provide a secondary market for farm mortgage loans. This agency plays a crucial role in the agricultural finance sector by enhancing the availability of long-term credit at stable interest rates to America’s farmers, ranchers, and rural homeowners.
Overview
Farmer Mac specializes in buying and guaranteeing agricultural loans, thereby ensuring liquidity and reliability in the farm credit system. As a secondary market entity, it buys authorized loans from lenders, securitizes them, and sells the resulting securities to investors. This process supports the agricultural credit infrastructure by providing farmers with easier access to lower-cost financing.
History and Establishment
Formation and Legislative Background
Farmer Mac was created through the Agricultural Credit Act of 1987, which was enacted in response to the 1980s farm debt crisis in the United States. The agency’s purpose was to replicate the benefits of the secondary mortgage market for residential housing, operated by entities like Fannie Mae and Freddie Mac, in the agricultural sector.
Initial Operations
Farmer Mac became operational in 1988 and began its mission to provide financial stability to rural and agricultural communities by enhancing the lending environment.
Functions and Services
Core Activities
- Purchasing Loans: Farmer Mac buys agricultural real estate loans and rural housing loans from lenders.
- Securitization: It bundles these loans into mortgage-backed securities and sells them to investors, providing liquidity to the original lenders.
- Credit Guarantees: Farmer Mac also provides credit guarantees to make these loans more attractive to lenders and investors.
Types of Loans
Farmer Mac deals primarily in:
- Farm Real Estate Loans: Loans secured by first liens on agricultural real estate.
- Rural Housing Loans: Loans for rural housing community development.
- USDA-Guaranteed Loans: Loans guaranteed by the United States Department of Agriculture.
Importance and Impact
Enhancing Liquidity and Stability
By functioning as a secondary market for agricultural loans, Farmer Mac helps ensure a consistent flow of funds to the agricultural sector, which is critical for maintaining food security and rural economic health.
Reduced Borrowing Costs
Farmer Mac’s activities typically result in lower costs of borrowing for farmers and rural homeowners, thus making it easier for them to finance necessary investments.
Comparisons and Related Terms
Comparison with Residential Secondary Markets
Like Fannie Mae and Freddie Mac in the residential mortgage market, Farmer Mac provides similar liquidity and risk mitigation benefits, but specifically for the agricultural sector.
Related Terms
- Agricultural Credit Act of 1987: The legislation that established Farmer Mac.
- Securitization: The process of pooling various types of contractual debt such as mortgages and selling consolidated debt as bonds or securities.
FAQs
What is Farmer Mac's primary role?
How does Farmer Mac benefit farmers?
Is Farmer Mac a government entity?
References
- “Federal Agricultural Mortgage Corporation.” Farmer Mac. [website URL]
- “Agricultural Credit Act of 1987.” U.S. Government Publishing Office. [website URL]
- “Understanding Farmer Mac.” American Agricultural Economics Association. [website URL]
Summary
The Federal Agricultural Mortgage Corporation, or Farmer Mac, is a federal agency crucial for providing liquidity and stability in the agricultural finance market. Established in 1988, its primary functions include buying, securitizing, and guaranteeing farm mortgage loans, thereby ensuring better access to credit for rural and agricultural communities. As a federal government-sponsored enterprise, Farmer Mac has a unique role similar to that of Fannie Mae and Freddie Mac in the residential sector, but specifically targeted towards supporting American agriculture.
