U.S. FARM LOAN SECONDARY MARKET GAINS SUPPORT
Proposals for a secondary market for
the resale of farm real estate loans similar to home mortgage
markets is gaining support in Congress and among rural lenders
and could be established this year, Congressional and financial
sources said.
    Several bills which would establish a farm secondary market
have been introduced in both the House and Senate. Furthermore,
Representatives of the Farm Credit System, commercial bankers
and life insurance companies are meeting in an attempt to agree
on a method of establishing the market.
    Frank Naylor, chairman of the Farm Credit Administration
(FCA), which regulates the farm credit system, yesterday said a
farm loan secondary market would be positive for agriculture
"as long as the farm credit system is a key player."
    Naylor told a House Agriculture subcommittee hearing the
secondary market could be established either with Congressional
legislation or administratively.
    Any farm loan secondary market would be modeled after the
successful resale markets in home mortgages, the Government
National Mortgage Association (GNMA) and the Federal Home Loan
Mortgage Corporation (Freddie Mac), industry sources said.
    Commercial banks and life insurance companies are the main
supporters of a farm loan secondary market because they believe
it would allow private lenders to compete more effectively in
rural lending with the quasi-government farm credit system,
traditionally the largest lender to farmers.
    A farm secondary market would allow lenders to sell
high-quality loans on farmland to "poolers" who in turn would
package the loans and issue farm mortgage-backed securities for
resale to investors-- called Aggie-mae by some supporters.
    However, the FCA and financially-troubled farm credit
system have in the past been ambivalent about the idea.
    The ambivalence is because any farm secondary market
established in the private sector that excluded the farm credit
system would put the system at a competitive disadvantage. That
could be a financial blow to the system, which has lost 4.6
billion dlrs in two years, Naylor and farm credit system
officials have said.
    A study commissioned by one of the main supporters of the
secondary market idea, the American Council of Life Insurers,
concludes the farm credit system's market share in rural
lending would fall if a secondary market were established. The
study was released earlier today.
 Reuter
