Farm Finance

Pursuant to a congressional request, GAO provided information on: (1) secondary investment markets; (2) existing agricultural real estate secondary markets; (3) legislative proposals for a national secondary market for agricultural real estate loans; and (4) the potential effects of a national secondary market.

GAO found that: (1) generally, a secondary market transaction occurs when an original lender sells a loan to an investor, usually for a fraction of its face value; (2) the stock exchanges and the home mortgage secondary market are the most widely recognized and best-developed secondary markets; (3) there is no organized national secondary market for agricultural real estate loans; (4) there are several organized regional secondary markets, operating primarily in heavily agricultural states; and (5) the Farm Credit System (FCS) performs some secondary market functions, but is usually a primary lender. GAO also found that: (1) 9 bills have been introduced in the 100th Congress that would create a national secondary market for farm real estate loans; (2) the proposals would all require government involvement, ranging from the creation of a federal chartered corporation either within or independent of FCS, to vesting the Secretary of Agriculture with the responsibility for creating a secondary market; and (3) the proposals would cause the government to incur liability ranging from providing initial funding for the market to loan and mortgage guarantees. In addition, GAO found that key issues surrounding the creation of a national secondary market include: (1) the necessary degree of federal involvement; (2) the impact of the market on FCS and other lenders; (3) whether FCS should be empowered as the secondary market; (4) whether a national secondary market could coexist with FCS; and (5) the loans that should be eligible for trading in a secondary market.