Federal Agricultural Mortgage Corporation (Farmer Mac)

Definition

The Federal Agricultural Mortgage Corporation (Farmer Mac) serves as a secondary market for agricultural real estate and rural housing mortgage loans. It was created under the Agricultural Credit Act of 1987 to improve the availability and reduce the cost of long-term credit to farmers, ranchers, and rural home buyers. By purchasing qualified loans from lenders or guaranteeing securities backed by these loans, Farmer Mac helps to ensure a predictable flow of funds to the agricultural sector.

Examples

Agricultural Real Estate Loans: Farmer Mac purchases qualified loans made by banks to farmers and ranchers for acquiring agricultural land, refinancing existing debt, or financing agricultural operations.
Rural Housing Loans: Farmer Mac’s guarantee extends to loans made to borrowers in rural areas for purchasing, constructing, or improving homes.
Loan Guarantees: Farmer Mac can guarantee securities issued by financial institutions that are backed by pools of qualified agricultural real estate and rural housing loans, providing greater liquidity for these lenders.

Frequently Asked Questions

What is the purpose of Farmer Mac?

Farmer Mac’s primary purpose is to increase the availability and affordability of long-term credit to farmers, ranchers, and rural homeowners by creating a secondary market for agricultural real estate and rural housing mortgage loans.

How does Farmer Mac support agricultural lenders?

Farmer Mac purchases eligible loans made by commercial banks, Farm Credit System institutions, and other regulated lenders. This process provides these lenders with more liquidity, enabling them to make additional loans to farmers and rural residents.

What types of loans qualify for Farmer Mac’s programs?

Loans that qualify include agricultural real estate mortgages, rural housing mortgages, and rural utility system loans. Each loan must meet specific criteria set by Farmer Mac to be eligible for purchase or guarantee.

Can individuals directly obtain loans from Farmer Mac?

No, individuals cannot directly obtain loans from Farmer Mac. The institution operates in the secondary market, working with primary lenders such as banks and credit unions that originate loans.

How does Farmer Mac ensure the quality of the loans it purchases?

Farmer Mac requires loans to meet specific underwriting standards and performs rigorous due diligence to ensure the quality and performance of the loans it acquires or guarantees.

Secondary Market: A financial market where previously issued securities, such as mortgage loans, are bought and sold.

Agricultural Credit: Financial products and services that provide credit to farmers, ranchers, and other agricultural businesses to finance their operations and growth.

Mortgage-Backed Securities (MBS): Debt securities that represent claims to the cash flows from pools of mortgage loans, including those guaranteed by institutions like Farmer Mac.

Agricultural Real Estate: Real estate specifically used for agricultural production, often including farmland and ranch land.

Online References

Suggested Books for Further Studies

“The Agricultural Mortgage Market: A Historical Overview” by Rebecca T. Jenkins
“Agricultural Finance: From Crops to Land, Water and Infrastructure” by Charles B. Moss
“Understanding Agricultural Economics” by Gregory A. Baker and Stephen W. Klose

Fundamentals of Federal Agricultural Mortgage Corporation: Financial and Agricultural Systems Basics Quiz

### What is the primary purpose of Farmer Mac? - [ ] To issue short-term loans for seasonal farming activities. - [ ] To offer personal loans to farmers. - [x] To increase the availability of long-term credit for agricultural and rural housing mortgages. - [ ] To fund research on agricultural technologies. > **Explanation:** Farmer Mac was created to improve the availability and reduce the cost of long-term credit for the agricultural sector and rural housing markets. ### Who can directly receive loans from Farmer Mac? - [ ] Individual farmers. - [x] Regulated agricultural lenders. - [ ] Rural utility companies. - [ ] Any U.S. resident. > **Explanation:** Farmer Mac operates in the secondary market and does not deal directly with individual borrowers. It works with regulated lenders who provide loans to end borrowers. ### When was Farmer Mac established? - [ ] 1975 - [ ] 1982 - [x] 1987 - [ ] 1995 > **Explanation:** Farmer Mac was established under the Agricultural Credit Act of 1987 to enhance the availability of credit to the agricultural sector. ### What type of entity is Farmer Mac? - [ ] A state-owned enterprise. - [x] A stockholder-owned, federally chartered corporation. - [ ] A private financial consultancy. - [ ] A non-governmental organization. > **Explanation:** Farmer Mac is a stockholder-owned, federally chartered corporation designed to support rural housing and agricultural mortgage markets. ### What financial product does Farmer Mac primarily deal with? - [x] Mortgage-backed securities. - [ ] Personal loans. - [ ] Commercial loans. - [ ] Equity investments. > **Explanation:** Farmer Mac primarily deals with mortgage-backed securities (MBS) to provide liquidity to agricultural and rural housing markets. ### Does Farmer Mac originate loans directly? - [ ] Yes, it provides loans directly to farmers. - [ ] Yes, it offers home loans to rural residents. - [x] No, it purchases loans from authorized lenders. - [ ] No, it only provides financial advice. > **Explanation:** Farmer Mac does not originate loans; it purchases or guarantees qualified loans from primary lenders. ### What sector does Farmer Mac primarily support? - [ ] Urban housing. - [ ] Commercial real estate. - [x] Rural and agricultural sectors. - [ ] Industrial development. > **Explanation:** Farmer Mac primarily supports the rural and agricultural sectors by providing a secondary market for related mortgage loans. ### How does Farmer Mac enhance liquidity for agricultural lenders? - [x] By purchasing loans and providing guarantees. - [ ] By offering direct financial grants. - [ ] By subsidizing interest rates. - [ ] By investing in agricultural commodities. > **Explanation:** Farmer Mac enhances liquidity by purchasing qualified loans and providing guarantees, allowing lenders to reinvest the capital. ### Which Act led to the creation of Farmer Mac? - [ ] The Rural Development Act. - [ ] The Farm Bill. - [x] The Agricultural Credit Act of 1987. - [ ] The Homestead Act. > **Explanation:** The Agricultural Credit Act of 1987 established Farmer Mac to provide a secondary market for agricultural mortgage loans. ### What is a key feature of loans purchased by Farmer Mac? - [ ] They are only short-term loans. - [ ] They are non-collateralized loans. - [x] They meet specific underwriting standards. - [ ] They are solely for urban properties. > **Explanation:** Loans purchased by Farmer Mac must meet specific underwriting standards to ensure quality and performance.

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