Senate Panel Seeks to Revive Farmer Mac with New Powers

WASHINGTON - Even as politicians slash the federal budget, a little- noticed move by the Senate Agriculture Committee would give broad new powers to a moribund government-backed institution that securitizes farm and rural-housing mortgages.

Farmer Mac, which was created by Congress in 1987, is fighting for its life. It has been plagued by scanty business volumes and operating losses that have eaten away almost half of the $22 billion it started out with. And by December 1996, the agency, formally the Federal Agricultural Mortgage Corp., must meet capital standards that it says it will likely not fulfill.

Last month, the Senate Agriculture Committee, chaired by Sen. Richard Lugar, R-Ind., approved measures that would give Farmer Mac some regulatory breathing room. Instead of the December 1996 deadline, Farmer Mac would have until December 1999 to meet its capital standards.

And the agency would get new authority to purchase agricultural mortgages directly from lenders and pool them into securities. Currently it must operate through other institutions that pool mortgages - an arrangement that has added to costs and competition, the agency says.

Another measure, which would make Farmer Mac debt securities as liquid as those of Fannie Mae and Freddie Mac, should help Farmer Mac significantly expand its own portfolio of mortgages as well.

Finally, Farmer Mac would take the first hit on any loan losses, because lenders would no longer be required to hold a 10% cash reserve against the loans.

Skeptics worry that the mix of new powers and regulatory leeway could lead to a fiscal crisis, as Farmer Mac tries to boost business volumes and attract new capital.

The measures would "essentially give Farmer Mac carte blanche and tell the regulators to keep their hands off them for at least three years," said David Freshwater, associate professor of agricultural economics at the University of Kentucky, Lexington.

Without the measures "you've got an institution that's got a year left, at best, to live," said Mr. Freshwater. The new powers give managers at Farmer Mac "an incredible incentive to bet the ranch because they have nothing to lose," he added.

The nub of the problem, Mr. Freshwater said, is that Farmer Mac just isn't needed. Agricultural real estate debt shrank in the mid-'80s and is growing very slowly now.

Commercial banks, life insurance companies, equipment manufacturers, even chicken processors like Tyson Foods, make agricultural loans - leaving little room for new federal capital, according to Mr. Freshwater.

Farmer Mac officials disagree. Tom Clark, vice president of corporate relations, said that the problem is a "broken" structure, not a lack of demand for federal capital.

"Our sense is that if Farmer Mac is restructured so that it can offer the program, so that the pricing is efficient, then we will have a test opportunity to see whether this market will respond to the secondary market, as the housing market has," Mr. Clark said.

A House bill sponsored by Rep. Bill Emerson, R-Mo., would give Farmer Mac the same powers as the Senate bill, and is expected to pass.

Suzanne McCrory, director of the office of secondary-market oversight at the Farm Credit Administration, said the agency was aware that Farmer Mac would take on new risks, and "one has to consider the capital consequences." The regulator is still studying the issue, Ms. McCrory said.

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