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Prospects for a Secondary Market for Farm Mortgages

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  • Hiemstra, Stephen W.
  • Koenig, Steven R.
  • Freshwater, David

Abstract

The success of a secondary market for farm mortgages depends on the underwriting standards adopted by the recently created Federal Agricultural Mortgage Corporation (Farmer Mac) and active participation of Farm Credit System (FCS) lenders. Development of underwriting standards and other administrative requirements in both the public and private sectors is likely to delay the initiation of market operations until late 1989. Tight underwriting standards and less than full participation of the FCS could delay active trading for several years after market operations begin. A secondary market is a financial market in which lenders sell mortgages to poolers who, in turn, market securities backed by those mortgages to investors. Loan sales allow lenders to recover most of the loan principal. Borrowers who meet Farmer Mac underwriting standards may therefore be able to get loans even when the supply of loanable funds is otherwise constrained. When loanable funds are more accessible, secondary market sales will increase competition among lenders and lower interest rates. Borrowers who do not meet Farmer Mac standards may either have to rely increasingly on Government credit programs or pay more for credit.

Suggested Citation

  • Hiemstra, Stephen W. & Koenig, Steven R. & Freshwater, David, 1988. "Prospects for a Secondary Market for Farm Mortgages," Agricultural Economic Reports 308066, United States Department of Agriculture, Economic Research Service.
    • Handle: RePEc:ags:uerser:308066
    DOI: 10.22004/ag.econ.308066
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    References listed on IDEAS

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