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Will Three Times Be the Charm for Farmer Mac? A 1996 Revamp Adjusted Deficiencies in Powers and Structure Left by the 1987 Blueprint. Now New Efforts, Including a Partnership with ABA, Promise to Bring More Banks into the Fold

Most people celebrate anniversaries. But to Henry Edelman, Farmer Mac president and CEO since the agency's beginning, the upcoming 20th anniversary of the concept of Farmer Mac isn't the date to celebrate. For that matter, he says in a recent interview, neither is the 1989 launch of the agency. Edelman prefers to think kindly on the nearing tenth anniversary of 1996 legislation that expanded what Farmer Mac can do. That, he insists was the true turning point for the agency. "Before then, the charter was somewhat limited," Edelman says. And now, he hopes, a new joint program to be launched this month with ABA, and the opening of Farmer Mac's first satellite office, to be situated in Ames, Iowa, will bring more bank customers aboard. Mixed responses Farmer Mac was initially set up to buy new and pre-existing farm mortgages from "poolers," who assembled the loans from lenders. Nowadays, this effort is referred to as Farmer Mac I, and lenders can sell directly to Farmer Mac. Farmer Mac can now also buy the guaranteed portion of USDA-guaranteed farm loans through the Farmer Mac II program. Purchases can be for cash or in exchange for the agricultural mortgage-backed securities (AMBSs) Farmer Mac can package loans into, stamping each with its own guarantee. There are other variations as well. AMBSs can be sold to third-party investors or held in the agency's own portfolio. Indeed, in recent years Farmer Mac has tended towards the latter strategy, sometimes under criticism from those who think selling them off would make more funds available and help establish a more routine secondary market for AMBSs. Farmer Mac's response to such criticism has been that taking advantage of the profitability of holding such securities keeps it profitably in business to continue serving lenders' needs. Income earned on such holdings represents the only source of income available to the agency besides fees received in connection with securities issued and other such arrangements. As a result, Farmer Mac tends to fund its purchases by issuing debt instruments. Bankers assess Farmer Mac One of the criticisms made of Farmer Mac is that it doesn't serve as many lenders as it could. Several large organizations dominate some aspects of its activities. One such institution is Zions First National Bank, a major Farmer Mac stockholder and a leading participant in its purchase program and big buyer of AMBSs. In 2004, Zions accounted for 33% of loans sold into the Farmer Mac I program, for instance. Another aggressive user is $115 million-assets Bath (Ind.) State Bank. The bank is very heavily involved in Farmer Mac II sales. Kimberly J. Burton, vice-president in charge of the bank's $70 million ag department, says that over half of the bank's farm-lending portfolio consists of federally guaranteed farm loans. Being able to sell the guaranteed portion of these loans to Farmer Mac has enabled Bath State Bank to aggressively expand its ag-lending efforts, says Burton. A small bank like this could not pursue so much business without the Farmer Mac II availability, she explains. So busy is the bank with this opportunity, she adds, that it has never had the staff time to explore getting involved with Farmer Mac I. Another lender--who chaired the ABA Agricultural and Rural Bankers Committee during the formative years of the Farmer Mac concept--is Mike Grove, president of $75 million-assets Bank of the Rockies, N.A., White Sulphur Springs, Mt. "It's serving a need that's out there," says Grove, "and it is doing what we conceptualized." One disappointment to Grove is that Farmer Mac hasn't caught on, in terms of volume, like the secondary housing mortgage market agencies have. If Farmer Mac could grow further, Grove believes the interest rates that it could offer lenders--to in turn offer their farmer customers--would be even lower. "It's a function purely of size and efficiency," says Grove. …