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Modeling the Credit Risk in Agricultural Mortgages: A Critical Review of the Farm Credit Administration’s Credit Risk Model for Farmer Mac

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Listed:
  • Austin Kelly

    (US Government Accountability Office)

Abstract

Farmer Mac is the GSE charged with creating a secondary market in loans backed by agricultural real estate. The Farm Credit Administration (FCA) has estimated a credit risk model for agricultural mortgages. This model is a key determinant of Farmer Mac’s risk based capital (RBC) requirement. This paper reviews both the structure of FCA’s credit risk model, and the data used by FCA’s contractors to estimate the model. Serious concerns are raised about both data quality and the econometric specification in use. Under Basle II, RBC models will proliferate. Assessing the validity of credit risk models will become increasingly important.

Suggested Citation

  • Austin Kelly, 2004. "Modeling the Credit Risk in Agricultural Mortgages: A Critical Review of the Farm Credit Administration’s Credit Risk Model for Farmer Mac," Finance 0409001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0409001
    Note: Type of Document - pdf; pages: 27
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0409/0409001.pdf
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    References listed on IDEAS

    as
    1. Kerry D. Vandell & Walter Barnes & David Hartzell & Dennis Kraft & William Wendt, 1993. "Commercial Mortgage Defaults: Proportional Hazards Estimation Using Individual Loan Histories," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(4), pages 451-480, December.
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    More about this item

    Keywords

    Basle II; risk based capital; credit risk; agricultural mortgage finance;
    All these keywords.

    JEL classification:

    • G - Financial Economics

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