Farmer Mac

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You can’t choose your family. In the Mac and Mae household, overgrown delinquent mortgage financiers Freddie and Fannie are now in federal custody, deemed a danger to themselves and others. But lesser-known members of the public-private clan also face testing times. Farmer Mac, the toxic twins’ rural cousin, has seen its market value plummet from more than $350m last year to barely $50m. In fact, some 80 per cent of its value has vanished in the past two weeks.

The Federal Agricultural Mortgage Corporation was created in 1988 to buy up, guarantee and repackage agricultural real estate and rural housing loans. Like its larger residential relatives, it has a public mission to ease the flow of credit at stable interest rates, in this case to US farmers, ranchers and rural dwellers.

Its predicament, by now, sounds familiar. After rapid growth, Farmer Mac now owns or guarantees loans worth about $9.5bn, up from $5.3bn in 2005, teetering on core capital of about $255m in June. It expanded mostly through guaranteeing off-balance sheet loans, against which the company must hold only about a third of the capital required for its on-balance sheet book. Having blown through its $40m in excess capital at the end of June, the company is racing to restructure its balance sheet or raise funds to avoid tripping its paltry statutory minimum.

But Farmer Mac has not been undone by rising loan losses. Helped by strong land values and rising crop prices, delinquencies on agricultural loans remain at historically low levels. Instead, the group has been hit by losses in its $2bn, supposedly low-risk, investment portfolio. A $50m holding of Fannie Mae preferred stock has been all but wiped out, while $60m of Lehman senior debt securities means an expected impairment of $48m. Another tiny nook of the financial system is being ploughed over by larger failures elsewhere.

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