Farmer Mac (Federal Agricultural Mortgage Corporation)

Definition

Farmer Mac, officially the Federal Agricultural Mortgage Corporation, was established by the Agricultural Credit Act of 1987. As a government-sponsored enterprise (GSE), Farmer Mac’s main role is to provide a secondary market for agricultural loans, thus increasing the availability and affordability of credit for farmers and rural homebuyers. By purchasing qualified agricultural loans, Farmer Mac ensures liquidity and reduces risk for lenders, which encourages the provision of more credit to rural areas.

Examples

Agricultural Loan Purchases: Farmer Mac might purchase a portfolio of agricultural real estate loans from a rural bank, providing the bank with immediate capital and reducing their loan risk.
Mortgage-Backed Securities (MBS): Farmer Mac can securitize a pool of agricultural loans into MBS, which are then sold to investors, spreading the credit risk and fostering investment in rural areas.
Rural Housing Loans: Farmer Mac could help a rural family obtain a mortgage at a competitive rate by providing liquidity to their local lender, who might not have sufficient resources otherwise.

Frequently Asked Questions (FAQs)

What is the main purpose of Farmer Mac?

Farmer Mac aims to improve the availability and affordability of agricultural and rural housing mortgage credit, thus supporting rural economic development.

How does Farmer Mac differ from Fannie Mae and Freddie Mac?

While Fannie Mae and Freddie Mac focus primarily on residential mortgages, Farmer Mac is specifically designed to support agricultural loans and rural housing mortgages.

Is Farmer Mac a government agency?

Farmer Mac is a government-sponsored enterprise (GSE), meaning it has a public mission but operates as a private, shareholder-owned company.

What types of loans does Farmer Mac purchase?

Farmer Mac purchases agricultural real estate loans, rural housing loans, and certain types of rural utility loans.

How does Farmer Mac benefit farmers?

By providing a secondary market for agricultural loans, Farmer Mac increases liquidity for lenders, making credit more accessible and affordable for farmers. This helps farmers finance their agricultural operations and invest in their businesses.

Government-Sponsored Enterprise (GSE): A financial services corporation created by the United States Congress to enhance the flow of credit to specific sectors of the economy.
Agricultural Credit Act of 1987: Legislation that established Farmer Mac to improve the availability of agricultural credit and to help rural economies.
Mortgage-Backed Securities (MBS): Financial instruments that are created by pooling together various mortgage loans and selling them as a single security to investors.
Secondary Market: A market where existing loans or securities are bought and sold, providing liquidity to the financial system.

Online Resources

References

“Agricultural Credit Act of 1987,” U.S. Congress.
Federal Agricultural Mortgage Corporation, SEC Filings.
USDA Farm Service Agency, Rural Development Programs.

Suggested Books for Further Studies

“The Economics of Agricultural Development” by George W. Norton, Jeffrey Alwang, and William A. Masters - This book provides an overview of agricultural development and policy.
“Agricultural Finance: From Crops to Land, Water, and Infrastructure” by Charles B. Moss - A comprehensive guide to agricultural finance principles, markets, and policies.
“Principles of Agricultural Economics” by Andrew Barkley and Paul W. Barkley - An insightful study into the economic principles affecting the agricultural sector.

Real Estate Basics: Farmer Mac Fundamentals Quiz

### What is the primary purpose of Farmer Mac in the U.S. financial system? - [ ] To regulate all banking institutions in the U.S. - [ ] To provide direct loans to urban areas - [ ] To help balance the federal budget - [x] To improve the availability and affordability of mortgage credit for agriculture and rural housing > **Explanation:** The main purpose of Farmer Mac is to enhance the availability and affordability of mortgage credit specifically for agricultural needs and rural housing, thereby supporting rural community development. ### When was Farmer Mac established? - [ ] 1965 - [x] 1987 - [ ] 1999 - [ ] 2005 > **Explanation:** Farmer Mac was established in 1987 through the Agricultural Credit Act of 1987 to provide a secondary market for agricultural loans. ### What type of entity is Farmer Mac? - [ ] A purely private corporation - [x] A government-sponsored enterprise (GSE) - [ ] A non-governmental organization (NGO) - [ ] A federal agency > **Explanation:** Farmer Mac is a government-sponsored enterprise (GSE) which combines a public mission with a private shareholder-owned structure. ### How does Farmer Mac help rural lenders? - [ ] By providing free financial advice - [ ] By controlling interest rates for all loans - [x] By purchasing their agricultural loans, providing liquidity and reducing risk - [ ] By mandating loan approval policies > **Explanation:** Farmer Mac purchases agricultural loans from rural lenders, giving those lenders liquidity and reducing their risk, which supports further lending to rural communities. ### Which act led to the creation of Farmer Mac? - [ ] Farm Bill 1990 - [x] Agricultural Credit Act of 1987 - [ ] Housing and Urban Development Act 1968 - [ ] Financial Services Modernization Act of 1999 > **Explanation:** The Agricultural Credit Act of 1987 established Farmer Mac to improve agricultural credit and support rural economies. ### Who are the primary beneficiaries of Farmer Mac's activities? - [ ] Urban real estate developers - [ ] Technology companies - [ ] Government contractors - [x] Farmers and rural homebuyers > **Explanation:** The primary beneficiaries are farmers and rural homebuyers, as Farmer Mac's activities increase the availability and affordability of mortgage credit in rural areas. ### What differentiates Farmer Mac from other GSEs like Fannie Mae or Freddie Mac? - [ ] It operates exclusively in urban areas. - [x] It focuses on agricultural and rural housing loans. - [ ] It provides direct loans to consumers. - [ ] It doesn't operate in the mortgage market. > **Explanation:** Unlike Fannie Mae or Freddie Mac, which focus on residential financing, Farmer Mac specializes in agricultural and rural housing loans. ### What are Mortgage-Backed Securities (MBS)? - [x] Financial instruments created by pooling mortgage loans and selling them to investors - [ ] Direct loans granted by banks to individual borrowers - [ ] Derivatives traded on global stock exchanges - [ ] Insurance policies for high-risk loans > **Explanation:** Mortgage-Backed Securities are created by pooling multiple mortgage loans and selling them as a single financial instrument to investors. Farmer Mac uses this method to spread credit risk. ### Why is liquidity important for rural lenders? - [ ] It decreases regulation efforts. - [ ] It reduces the need for financial advice. - [x] It allows them to issue more loans and manage risks better. - [ ] It increases their profit margins without investments. > **Explanation:** Liquidity allows rural lenders to issue more loans because they have more available cash and can better manage risk by selling loans to entities like Farmer Mac. ### Can Farmer Mac’s financing contribute to rural economic development? - [x] Yes - [ ] No > **Explanation:** Yes, by increasing the availability of rural mortgage credit and reducing financing costs, Farmer Mac contributes significantly to rural economic development.