Farmer Mac, which has struggled for seven years to build a secondary market for farm loans, is now turning to Congress for help.

The government-sponsored concern, formally known as the Federal Agricultural Mortgage Corp., is lobbying for broader powers and for an extension of a deadline for meeting new capital rules.

Though the corporation currently meets its capital requirements, it will likely fail new standards that go into effect in December 1996 if it doesn't generate more business or raise funds. Its capital base has slipped 43% since it was started in 1988, to $12 million.

"What we are saying to Congress is Farmer Mac needs legislative relief if we are going to make this business go," said Thomas R. Clark, vice president of corporate relations. "The Congress is going to have to decide what it wants to do with Farmer Mac."

Farmer Mac supporters - namely community bankers who own about half of Farmer Mac stock - have clearly grown impatient. They grumble that Farmer Mac has formed a mere six pools valued at $711.3 million. They are angry with its losses - Farmer Mac lost $1.3 million in 1994 - and they criticize executives for taking what they consider big salaries and bonuses while capital slides.

"Are they upset? Sure they are upset," said John C. Dean, president of Glenwood (Iowa) State Bank, who joined Farmer Mac's board nearly 12 months ago. "When Farmer Mac started, everybody thought it was going to go gangbusters. It didn't happen."

To be sure, Farmer Mac's management has taken steps to solve its problems. Since adopting a business plan in August, Farmer Mac has been working to finalize the details of an arrangement with Fannie Mae and the Farm Credit Bank of Columbia, S.C., to pool rural housing loans. It also has entered into a five-year alliance with Western Farm Credit Bank, Sacramento, Calif., which will pool loans and submit them to Farmer Mac for guarantees.

Finally, Farmer Mac executives are talking to investment bankers about raising additional capital, but details of an offering have not yet been worked out.

Still, some bankers and observers are worried that Farmer Mac might not survive.

"If Congress does not extend their minimum capital standards, they will not have enough capital to survive," said a source who has worked closely with the corporation. "Without this additional infusion of capital, they are finished."

Mr. Clark acknowledges that the December 1996 capital trigger "is a fairly serious obstacle" but says it is not insurmountable, especially if new business starts flowing. He noted that the corporation also has the backing of the American Bankers Association and the Independent Bankers Association of America.

"I still have faith," said Glenwood State's Mr. Dean, a farmer and past chairman of the IBAA's agriculture committee.

The bill calls for nearly a dozen measures that would help the corporation, but one of the most important would give Farmer Mac a three- year extension to meet the new capital requirements.

The measure would require the corporation to rebuild capital to at least $25 million within three years of the enactment of the bill. And it limits Farmer Mac's growth to no more than $3 billion in assets until it raises the capital.

If Farmer Mac fails to rebuild its capital by the three-year deadline, the legislation calls for the corporation to cease operations.

Under current rules, if Farmer Mac falls below risk-based and minimum capital levels, its regulator, the Farmer Credit Administration, could take steps that include prohibiting dividend payments, requiring a capital restoration plan, and appointing a conservator.

The legislation also would give Farmer Mac some significant new powers. For example, the corporation would gain authority to pool or purchase loans directly from originators, similar to the powers enjoyed by Fannie Mae and Freddie Mac, two highly successful government-sponsored enterprises. Right now, Farmer Mac gets loans from intermediaries known as poolers.

Mr. Clark said poolers certified by Farmer Mac have little loyalty to the corporation and have kept loans in their portfolio rather than pass them on to Farmer Mac. The corporation "decertified" six of nine poolers in January because they didn't generate enough business.

The legislation would also eliminate the mandatory participation interest that requires a 10% minimum cash reserve on each pool. Farmer Mac argues that the 10% cash reserve, which the other GSEs don't have to meet, has been a serious impediment to generating new business. It requires poolers that retain the subordinated portion to hold capital against it. And it is difficult to sell the subordinated because the market rates it as junk, Farmer Mac officials said.

Mr. Clark said the proposed bill doesn't yet have a sponsor, but he said there are members interested.

"We haven't found one who would lead the charge in what could become a conflict," he said. "The Hill is a long, slow process."

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