GAO report: Farmer Mac lacks adequate plan for risk management

The Federal Agricultural Mortgage Corporation is lacking an adequate risk management plan, according to a review of the program by the federal government's General Accounting Office.

“If Farmer Mac were to undergo stressful economic conditions, it would face substantial funding liquidity risk,” the General Accounting Office report says. “Farmer Mac has risk management systems in place, but certain aspects of its risk management capacity have not kept pace with its increasingly complex portfolio.”

Federally-chartered to provide a secondary market for the financing of agricultural loans, the Federal Agricultural Mortgage Corporation is commonly known as “Farmer Mac.”

In a joint statement about the report, Sens. Thad Cochran, R-Miss., and Tom Harkin, D-Iowa, said, “Congress made an important commitment to maintaining a strong secondary agricultural lending market with the 1988 creation of the Federal Agricultural Mortgage Corporation. The committee is mindful of its responsibility to help assure agriculture producers of access to dependable sources of credit.”

The U.S. Senate Agriculture, Nutrition and Forestry Committee, which Cochran and Harkin currently lead, requested the General Accounting Office report in June 2002.

In the recent report, the General Accounting Office recommends that Farmer Mac improve its risk management practices. The agency also recommends the Farm Credit Administration improve the model it used to analyze Farmer Mac's credit risk, and assess the program's impact on the agricultural real estate market.

In addition, the General Accounting Office asks Congress to consider legislative changes that would establish clearer, measurable mission goals for the Federal Agricultural Mortgage Corporation, amend its board structure, and allow capital standards to be adjusted.

Since 1999, the General Accounting Office says, “Farmer Mac has significantly increased its mission activities of providing long-term credit to farmers and ranchers at stable interest rates. However, there is a geographic and lender concentration in the loan and guarantee portfolio.”

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