Federal Agricultural Mortgage Corporation (FAMC)
What is 'Federal Agricultural Mortgage Corporation (FAMC)'
Federal Agricultural Mortgage Corporation (FAMC), founded by an act of Congress in 1988, has a focus on the agricultural industry. Its mission is to create a secondary market for agricultural mortgage securities (AMBs) and ease conditions for agricultural and rural borrowing. Farmer Mac is another name for FAMC. The company is publically owned and traded.
BREAKING DOWN 'Federal Agricultural Mortgage Corporation (FAMC)'
Federal Agricultural Mortgage Corporation (FAMC) creation was a result of a combination of decreased farm income and increased interest rates. These two pressures led to a crisis among agricultural borrowers. In 1987, Congress responded, passing the Agricultural Credit Act which created Farmer Mac.
Farmer Mac's charter includes the ability to issue debt securities. The cash flow from these sales is reinvested into agricultural mortgages and rural loan purchases. FAMC works with rural lenders, businesses, and institutions to offer low-cost rural financing. Farmer Mac guarantees agricultural mortgage-backed securities (AMBs). Its broader goal is to foster a secondary market for agricultural real estate and rural housing loans. FAMC also supports the availability of long-term credit for American farmers, ranchers, and rural homeowners.
Functions of FAMC
Farmer Mac’s function within the marketplace is similar to that of other government-sponsored enterprises (GSEs), such as Fannie Mae and Freddie Mac. It purchases retail loans then repackages them into pools of marketable securities. As a secondary market, Federal Agricultural Mortgage Corporation (FAMC), provides a market for those securities.
These actions bring global capital to broaden the pool of qualified buyers for rural real estate or other assets. The loan insurance provided by these GSEs also serve this end. These efforts lead to the availability of lower interest rates for retail borrowers and cost savings over the life of a loan.
Farmer Mac Debt Securities
Farmer Mac issues a variety of debt securities, including discount notes, floating-rate medium-term notes, and callable notes.
These securities are not guaranteed by the federal government and are not associated with the Farm Credit System (FCS). Farmer Mac regularly issues agricultural mortgage-backed securities (AMBs). AMBs have backing by either Farm and Ranch program loans, or USDA-guaranteed portions of loans, guaranteed by the
Like other GSEs, Farmer Mac facilitates the borrowing process and costs for agricultural borrowers. This loan activity creates significant risk for the agency, especially in times of financial crisis. Widespread mortgage defaults put stress on Farmer Mac’s ability to guarantee loans.
Higher interest rates may also lead to higher repayment risk and strain Farmer Mac’s ability to cover loans.
During the 2008 financial crisis, Farmer Mac’s investment in Fannie Mae shares and Lehman Brothers Holdings led to significant losses. These losses forced the Farm Credit System and other investors to bail out Farmer Mac through a stock purchase worth over $65 million.