New House Bill Would Create ‘Farmer Mac’ : Makes Secondary Market for Agricultural Loans

Freddie Mac and the Mae sisters, Fannie and Sallie, may be gaining a new relative, a fellow bent on easing the credit crisis in rural America.

Nicknamed Farmer Mac, he will appear in legislation to be introduced today by California Rep. Richard H. Lehman (D-Sanger) and Rep. Doug Bereuter (R-Neb.).

The bill would establish a secondary market for loans on agricultural real estate and other farm-related loans. Commercial agricultural lenders, such as banks and insurance companies, could sell their agricultural loans to a new secondary market entity, the Farm Mortgage Marketing Corp., also known as Farmer Mac.

The loans would then be resold to institutional investors such as pension funds and insurance companies.

Similar to Fannie Mae

The legislation is similar in concept to existing secondary market institutions such as Freddie Mac (Federal Home Loan Mortgage Corp.), Fannie Mae (Federal National Mortgage Assn.) and Sallie Mae (Student Loan Marketing Assn.).

“This program will infuse the beleaguered farm credit market with new capital, competition and confidence,” said Lehman, who represents a farming district in California’s Central Valley.

The secondary-market idea is one of several being seriously considered on Capitol Hill as lawmakers grope for ways to lend a hand to farmers and banks mired in $210 billion of debt. The proposal was recommended by the American Bankers Assn. and the Independent Bankers Assn. of America.

Lehman and Bereuter sit on the House Banking Committee. Their bill would require $200 million in initial government funding. However, institutions selling to the corporation would be required to purchase stock as a means of repaying the government and transferring the independent agency to the private sector, Lehman said.