Farm & Ranch Credit Protection
Farmer Mac’s credit protection solutions are risk management tools that help lenders free up capital and reduce credit risk.
Farmer Mac’s Farm & Ranch Credit Protection solutions are flexible tools that allow lenders to seek full or partial credit risk relief, as these solutions can be customized to fit each lender’s unique needs. There are two core products to choose from, but each will help lenders improve their equity capital and manage general credit risk, borrower hold limits or portfolio concentrations. Lenders can choose from a guaranteed security product or a purchase commitment product, each designed to meet different needs. Additionally, Farmer Mac can tailor the products for flow loans, a single loan or a portfolio of loans.
Products:
Farm & Ranch Purchase Commitment
With a Farm & Ranch Purchase Commitment, lenders can obtain credit protection from Farmer Mac for specified eligible loans. For a modest annual fee, Farmer Mac will commit to purchase any of the scheduled loans that default. This loss protection can be structured with the lender retaining a portion of the risk, if desired, for a reduced fee charge by Farmer Mac.
How it Works:
- Lender identifies the loans for which it is seeking credit protection and specifies what degree of protection it is seeking (full, partial, etc.)
- Farmer Mac reviews the loans and approves them according to its standard credit requirements
- Once approved, the lender pays an annual commitment fee for the protection, retains the loans on its own balance sheet and continues to earn the interest
- If the loan defaults, Farmer Mac purchases the loan at par
Key Features:
- Lender eliminates all, or part, of the credit risk on the identified loans
- If full credit protection is elected, the risk weighting on the loans can drop from 100% to as little as 20%, thereby improving the lender’s equity position
- Lender retains the loans on its balance sheet, earns the interest on these loans, and maintains the customer relationship
- Very flexible way to manage credit risk, while not having to “say no” to a customer – you can continue to grow with that customer
Agricultural Mortgage-Backed Securities
The Agricultural Mortgage-Backed Securities (AMBS) product is a Farmer Mac Guaranteed Security that provides lenders both credit protection and liquidity for a desired population of eligible loans, which can include agricultural mortgages, guaranteed portions of eligible USDA or rural utility loans. Farmer Mac will securitize the desired population of eligible loans and provide a credit guarantee that ensures timely payment of principal and interest to the holder of the AMBS securities issued from the trust.
How It Works:
- Lender identifies the population of loans for which it is seeking credit protection
- Farmer Mac reviews the loans and approves them according to its standard credit requirements
- Once approved, Farmer Mac securitizes the loans and issues the Farmer Mac guaranteed AMBS (guaranteed as to timely payment of principal and interest)
- The lender may purchase the AMBS if it desires to earn the interest on the securities, or Farmer Mac may purchase the AMBS if the lender would like liquidity from the transaction
Key Features:
- Lender eliminates all of the credit risk on the identified loans
- If the Lender holds the AMBS on its balance sheet, the risk weighting can drop from 100% on the loans to as little as 20% on the AMBS, thereby improving the Lender’s equity position, while continuing to earn the interest on the AMBS securities
- If the Lender elects to have Farmer Mac purchase the AMBS, it also generates liquidity that can be used to make new loans
- Offers a way to manage credit risk, while not having to “say no” to a customer – you can continue to grow with that customer
Wholesale Financing
Farmer Mac can provide extremely efficient, low-cost wholesale financing to fund your institution’s eligible agricultural assets.
Farmer Mac’s Wholesale Financing solutions provide efficient funding for an institution’s eligible agricultural and rural utility assets. Whether you are a lender, an agricultural fund or an agricultural company, Farmer Mac has a product to fit your needs. There are two core products to choose from, one tailored for mortgage lenders and another for investors or owners of agricultural assets.
Products:
AgVantage
Our AgVantage product is designed for rural lenders. Lenders can borrow from Farmer Mac through the AgVantage facility, pledging eligible loans as collateral. The facility is easy to use and maintain, and the cost of funds is extremely competitive. Use of the facility is seamless, and does not impact the underlying loan assets.
How It Works:
- Lender applies to be an AgVantage facility participant and completes the facility documentation
- Lender identifies the population of loans that it intends to use as collateral and Farmer Mac reviews the loans for eligibility
- Lender issues AgVantage securities to Farmer Mac under the facility, generating low-cost capital that can be used to make new loans
Key Features:
- Use existing assets as collateral for borrowing low-cost debt capital
- Does not impact the loan collateral, nor the Lender’s customer relationships
- Facility is easy to use, with quick execution and with a full suite of available loan structures
Farm Equity AgVantage
Whether you are an agricultural fund or operating company; whether you are involved in production agriculture or are an agribusiness, you can use Farmer Mac’s Farm Equity AgVantage product to provide the wholesale capital you need to fund your assets. With Farm Equity AgVantage, your institution gains access to an easy to use facility, with a low cost of funds, that can be used to expand farm or agribusiness operations, purchase new assets, or develop existing assets.
How It Works:
- Lender applies to be a Farm Equity AgVantage facility participant and completes the facility documentation
- Lender identifies the eligible collateral that it intends to use to secure the borrowing from the facility and Farmer Mac reviews the collateral and approves
- The counter-party may then issue Farm Equity AgVantage securities to Farmer Mac under the facility, generating low-cost capital that it can use to invest in its business
Key Features:
- Use existing assets as collateral for borrowing low-cost debt capital
- Facility is easy to use, with quick execution and with a full suite of available loan structures
- The financing is provided at the entity level, as opposed to the individual asset level, and is designed to be flexible in the use of proceeds
Custom Solutions
Farmer Mac prides itself on innovation and custom-designed solutions to fit our customers’ needs. We have built a talented team of knowledgeable agriculture and financial specialists who all share a passion for rural America and who are committed to solving our customers’ problems and exceeding their expectations. Let us craft an innovative solution for your unique business need.