Act that permitted the Federal Agricultural Mortgage Corporation (Farmer Mac) to serve as an agricultural mortgage marketing facility.
In the aftermath of the 1980s farm crisis, which was set off by the wheat embargo against the Soviet Union in 1979, Congress created Farmer Mac (the Federal Agricultural Mortgage Corporation) in 1987. Its purpose was to help bail out the Farm Credit System—which was designed to provide low-interest loans to farmers—with the purpose of forming a secondary market for, and to guarantee securities based on, farm real estate loans. These securities failed to establish a growing niche in farm credit markets, and the Farmer Mac capital base began to decline by the mid-1990s. The Farmer Mac charter required changes to allow it to become more beneficial.
Signed into law on February 10, 1996, the Farm Credit System Reform Act (1996 Reform Act) allowed Farmer Mac to become a direct purchaser of mortgages in order to form pools of financial resources. Previously Farmer Mac had just guaranteed securities formed from loan pools. The 1996 Reform Act amended the Farm Credit Act of 1971 by modifying the definition of certified facility to allow Farmer Mac to purchase loans for pooling (collecting) and securitization (backing) directly from sellers. It also eliminated the rule that Farmer Mac must keep a 10 percent subordinated interest [funds under the control of another authority] or cash reserves for loan pools. Farmer Mac now uses Federal Reserve banks as depositories, fiscal agents, or custodians. Regulatory oversight has increased, and timetables for recapitalization have been set. All of these measures made it more attractive for banks to participate in Farmer Mac.
In 2001, farmers and ranchers have more than $3.1 billion in mortgages that back securities guaranteed by Farmer Mac. The 1996 Reform Act allowed Farmer Mac to achieve profitability for the first time in its history, and its performance has improved every year since. It increased its capital from $12 million in 1995 to more than $100 million by 2001.
