Farmer Mac

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“Answer me when I call, O God of my righteousness!
You have given me relief when I was in distress.
Be gracious to me and hear my prayer! O men,
how long shall my honor be turned into shame?”
(Ps 4:1-2)

Farmer Mac

By Stephen W. Hiemstra

Once I began to focus on the work of Finance and Tax Branch in Rural Economy Division (RED) in 1986, I was asked to undertake research on the Federal Agricultural Mortgage Corporation, commonly known as Farmer Mac. Farmer Mac was new and exotic and largely incomprehensible for researchers focused on retail lending. As the new kid on the block, I enjoyed an interesting assignment with virtually no competition, making Farmer Mac research the ideal project.[1]

Farmer Mac’s authorizing legislation passed in 1987 as part of a broader bill to bail out the Farm Credit System (FCS), which had experienced serious losses during the farm financial crisis of previous year. Farmer Mac was authorized to garner support from community bankers for the FCS bailout under the premise that Farmer Mac would offer improved access to the bond market for the bankers similar to the bond market access enjoyed by FCS through their funding corporation.

As a conduit to the bond market, Farmer Mac had two business functions in its authorizing legislation. It was to securitize commercial farm mortgage loans and federally-guaranteed Farmer’s Home Administration mortgage loans. The commercial loan business was modeled after the home mortgage market securitizations of Freddie Mac and Fannie Mae, while the guarantee business was modeled after Ginnie Mae securitizations of Federal Home Administration guarantee mortgages. The parallels between Farmer Mac’s proposed business and the existing businesses in the home mortgage markets were incomplete, however, because farm loans are business loans and home mortgages are consumer credits—business loans are much riskier than consumer loans because their performance depends on business prospects while consumer loans rely on more stable salary income.

My initial research on Farmer Mac was a legislative review, Prospects for a Secondary Market in Farm Mortgages (1988), which took three of us about a year to complete. As subject-matter research in an agency more focused on disciplinary research (Hiemstra, 1991), the report got little attention in the building but was picked up by the farm press, the Farmer Mac board, and the board of directors at the Farm Credit Administration (FCA), which was tasked with Farmer Mac oversight. By 1989, when I gave a paper at the American Agricultural Economic Association conference in Baton Rouge, Louisiana, I was well-known enough to be invited to lunch by the FCA Chairman during the August conference and, later, was offered a promotion to join the FCA staff.

By September, however, the reality of my situation started to sink in.

The Friday of the week before I was to start work at FCA, I received a telephone call from my prospective supervisor. He asked: “Would I be willing to meeting him at J. Gilbert’s Wood-Fired Steaks and Seafood after work that day?” I responded: “No problem, but it would be no problem to swing by the office on the way home from work.” He returned: “No. Let’s get together at Gilbert’s.” Later, at Gilbert’s he proceeded to inform me that the FCA Chairman (who I had lunch with in Baton Rouge) was unhappy that an “aggie” (me) had been selected for that my position and he threatened my supervisor with a bad evaluation if he went ahead and hired me.[2] The punchline was: “Did I really want to work at FCA?” Yes . . . Absolutely . . . I needed the promotion, but the stress of my new position was now obvious even before I began work.

To deal with the stress and to celebrate my promotion, I bought a new Young Chang Studio Upright piano and began playing hymns daily.[3]

On Monday when I started work, I immediately left for Capital Hill. The agriculture committee was holding hearings on Farmer Mac and, as the resident FCA expert, it was a priority to attend. On Tuesday, the hearings were to continue and I planned to attend, but I got an early morning visit from a second-level supervisor who asked about my plans for the day. I replied: “I plan to attend the Farmer Mac hearings.” He responded that I could not attend as an FCA observer, but that I might take annual leave to attend. Dumbfounded, I asked why. Apparently, the FCA Chairman called from a conference in San Francisco to make sure that I did not attend the hearings.

Oh, by the way, welcome to the Farm Credit Administration!

References

Hiemstra, Stephen W. and Hyunok Lee. 1989. “Implications of Land Transfer Survey Data on Agricultural Mortgages for Farmer Mac,” Presentation at the American Agricultural Economic Association summer meetings in Baton Rouge. August .

Hiemstra, Stephen W., Steven R. Koenig, and David Freshwater. 1988. Prospects for a Secondary Market in Farm Mortgages. U.S. Department of Agricultural. Economic Research Service. Agricultural Economics Report No. 603. December. (Reprinted March 1989).

Hiemstra, Stephen W. 1991. “Production and Use of Subject-Matter Research in the Federal Service: Example of Research on Farmer Mac,” Agricultural Economics: The Journal of the International Association of Agricultural Economists. July. pp. 237-251.

[1] As a newly authorized financial intermediary, Farmer Mac was a start-up corporation without a staff or clear template for operations and most agricultural finance analysts had no experience with secondary mortgage markets.

[2] The issue was that the 1987 Act converted FCA from the head office of the FCS into an independent federal regulator. Agricultural economists (“aggies”) were considered too sympathetic to the FCS and not schooled in financial regulation. The preferred hires were accordingly bank examination personal from the Office of the Comptroller of the Currency in the U.S. Department of Treasury.

[3] The stress reducing effect of piano playing came to me from a story told to me by a roommate in college. His father was a station chief in the Central Intelligence Agency and could not discuss his work so he played piano to deal with the stress.

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