Farmer Mac - Federal Agricultural Mortgage Corp (FAMC) Explained

What Is the Federal Agricultural Mortgage Corporation (FAMC)?

The Federal Agricultural Mortgage Corporation (FAMC)—also known as Farmer Mac—was founded by an act of Congress in 1987 in response to the farm crisis in the United States. The crisis caused thousands of farmers to default on their loans and also resulted in the failure of many agricultural banks.

Congress established the Federal Agricultural Mortgage Corporation (FAMC) to create a secondary market for agricultural mortgage-backed securities (AMBS) and to ease conditions for agricultural and rural borrowing. The FAMC is a stockholder-owned, federally chartered corporation, trading under the ticker symbol "AGM."

Understanding the Federal Agricultural Mortgage Corporation (FAMC)

The creation of the Federal Agricultural Mortgage Corporation (FAMC) 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 to the emergency by approving the Agricultural Credit Act, which created Farmer Mac. In the years that followed, Congress expanded Farmer Mac's authority to include U.S. Department of Agriculture (USDA) guaranteed securities, whole loans, and rural utility loans.

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. Farmer Mac issues a variety of debt securities, including discount notes, fixed and 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).

Federal Agricultural Mortgage Corporation (FAMC) Functionality

Farmer Mac operates its secondary market activities through four lines of business: Farm & Ranch, USDA Guarantees, Rural Utilities, and Institutional Credit. 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 and then repackages them into pools of marketable securities. As a secondary market, the Federal Agricultural Mortgage Corporation (FAMC) provides a market for those securities.

FAMC works with rural lenders, businesses, and institutions to offer low-cost rural financing that includes flexible terms and competitive interest rates. 

Farmer Mac guarantees agricultural mortgage-backed securities. 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.

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 serves this end. These efforts lead to the availability of lower interest rates for retail borrowers and cost savings over the life of a loan.

Special Considerations

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 led to significant losses.

These losses forced the Farm Credit System and other investors to bail out Farmer Mac.