[Federal Register: September 13, 2007 (Volume 72, Number 177)]
[Proposed Rules]
[Page 52301-52309]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13se07-10]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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[[Page 52301]]
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FARM CREDIT ADMINISTRATION
12 CFR Part 652
RIN 3052-AC36
Federal Agricultural Mortgage Corporation Funding and Fiscal
Affairs; Risk-Based Capital Requirements
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
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SUMMARY: The Farm Credit Administration (FCA, Agency, us, or we) adopts
a proposed rule that would amend regulations governing the Federal
Agricultural Mortgage Corporation (Farmer Mac or the Corporation). We
propose to update the model in response to recent additions to Farmer
Mac's program operations that are not addressed in the current version
of the model. We propose to amend the current model's assumption
regarding the carrying cost of nonperforming loans to better reflect
Farmer Mac's actual business practices. We further propose to add a new
component to the model to recognize counterparty risk on nonprogram
investments through application of discounts or ``haircuts'' to the
yields of those investments and to make technical amendments to the
layout of the model's Credit Loss Module. The effect of the rule is to
update the model so that it continues to appropriately reflect risk in
a manner consistent with statutory requirements for calculating Farmer
Mac's regulatory minimum capital level.
DATES: You may send us comments by October 29, 2007.
ADDRESSES: We offer several methods for the public to submit comments.
For accuracy and efficiency reasons, commenters are encouraged to
submit comments by e-mail or through the Agency's Web site or the
Federal eRulemaking Portal. Regardless of the method you use, please do
not submit your comment multiple times via different methods. You may
submit comments by any of the following methods:
E-mail: Send us an e-mail at reg-comm@fca.gov.
Agency Web site: http://www.fca.gov. Select ``Legal
Info,'' then ``Pending Regulations and Notices.''
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Robert Coleman, Director, Office of Secondary Market
Oversight, Farm Credit Administration, 1501 Farm Credit Drive, McLean,
VA 22102-5090.
FAX: (703) 883-4477. Posting and processing of faxes may
be delayed, as faxes are difficult for us to process and achieve
compliance with section 508 of the Rehabilitation Act. Please consider
another means to comment, if possible.
You may review copies of comments we receive at our office in
McLean, Virginia, or on our Web site at http://www.fca.gov. Once you
are in the Web site, select ``Legal Info,'' and then select ``Public
Comments.'' We will show your comments as submitted, but for technical
reasons we may omit items such as logos and special characters.
Identifying information that you provide, such as phone numbers and
addresses, will be publicly available. However, we will attempt to
remove e-mail addresses to help reduce Internet spam.
FOR FURTHER INFORMATION CONTACT: Joseph T. Connor, Associate Director
for Policy and Analysis, Office of Secondary Market Oversight, Farm
Credit Administration, McLean, VA 22102-5090, (703) 883-4280, TTY (703)
883-4434; or Rebecca Orlich, Senior Counsel, Office of the General
Counsel, Farm Credit Administration, McLean, VA 22102-5090, (703) 883-
4420, TTY (703) 883-4020.
SUPPLEMENTARY INFORMATION:
I. Purpose
It is the Agency's objective that the risk-based capital stress
test (RBCST) continue to determine regulatory capital requirements
consistent with statutory requirements and constraints. The purpose of
this proposed rule is to revise the risk-based capital (RBC)
regulations that apply to Farmer Mac to more accurately reflect changes
in Farmer Mac's operations or business practices. The substantive
issues addressed in this proposed rule are treatment of program loan
volume with certain credit enhancement features (e.g., Off-Balance
Sheet AgVantage volume, subordinated interests, and program loan
collateral pledged in excess of Farmer Mac's guarantee obligation
(hereafter, ``overcollateral'')), counterparty risk on nonprogram
investments, and the resolution timing for nonperforming loans and
associated carrying costs. We also propose minor formatting changes to
the structure of the Credit Loss Module that are in the nature of
technical changes.
II. Background and Summary of Revisions
In 2006, Farmer Mac initiated a program to guarantee timely
repayment of principal and interest on notes that are collateralized by
Farmer Mac-eligible agricultural real estate mortgage assets and are
also secured by an obligation of the mortgage lender. We will refer to
this product as Off-Balance Sheet AgVantage. The first such transaction
was a guarantee of $500 million in guaranteed notes announced by Farmer
Mac on January 23, 2006. Subsequently, Farmer Mac announced similarly
structured transactions for $1 billion each on July 13, 2006, and April
11, 2007. The current version of the RBCST lacks a component to
recognize the credit enhancement provided by the lender's obligation
and, consequently, this volume is excluded from the modeled loan
portfolio. We propose to begin including this product in the RBCST
model. Further, in the event that Farmer Mac introduces products that
include a subordinated interest retained by the primary lender, we
propose a modeling treatment of such structures.
We proposed revisions to the treatment of nonprogram investments
and the carrying cost of nonperforming loans in our rule published in
November 2005.\1\ We did not adopt those proposed revisions in the
final rule that amended other parts of the model.\2\ We now propose
revisions to these two components that differ somewhat from those
proposed in November 2005. We propose to account for counterparty risk
on nonprogram investments by applying a discount (or ``haircut'') to
the yields of nonprogram investments scaled according to credit
ratings, with a 10-year phase-in. We propose a method of calculating
the
[[Page 52302]]
carrying cost of nonperforming loans over a period we refer to as the
Loan Loss Resolution Time period, or ``LLRT'', that will include a
quarterly update of the LLRT estimate.
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\1\ 70 FR 69692 (November 17, 2005).
\2\ 71 FR 77247 (December 26, 2006).
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Finally, we propose other technical changes to improve formatting
and clarity of labeling in certain cells of the Credit Loss Module
worksheets.
III. Issues, Options Considered, and Proposed Revisions
A. Treatment of Off-Balance Sheet AgVantage Program Volume
In 2006, Farmer Mac initiated a program to guarantee the timely
repayment of principal and interest on notes that, in addition to being
collateralized by Farmer Mac-eligible agricultural real estate
mortgages, are also secured by an obligation of the primary lender of
those mortgages. The current version of the model lacks a component to
recognize the credit enhancement provided by the issuer's general
obligation and any contractually required loan collateral in excess of
the face value of the guaranteed notes.
We propose to revise the model to include this program volume by
modeling all loans in guaranteed note portfolios in the same manner as
all other program volume, with two differences. The first difference
would recognize the risk mitigation provided by the general obligation
by reducing the age-adjusted dollar losses estimated on the subject
loans by an adjustment factor derived from historical default rates by
the whole letter credit ratings of corporate bond issuers as reported
by a nationally recognized statistical rating organization (NRSRO). The
second difference would address the risk-reducing effects of
contractually required overcollaterization of the subject portfolio, if
any.
The derivation and application of the general obligation adjustment
factor would be as follows. We would define five levels of credit
ratings from ``AAA'' to ``below BBB and unrated.'' We would assign each
of the NRSRO-rating categories to one of the five general whole-letter
rating categories we define. The adjustment factors applied would be
equal to the average cumulative issuer-weighted, 10-year corporate
default rates from 1920 through the most recent year as published by
Moody's Investor Services.\3\ For issuers that are rated below BBB or
are unrated, the model would apply a factor equal to the 10-year
corporate default rates on Speculative-Grade bonds published in the
same report. This rate would then be further adjusted to obtain an
estimated loss rate related only to a general obligation of the
corporate issuer/Off-Balance Sheet AgVantage counterparty with a given
credit rating by considering the loss-severity rate as implied by
recovery rates published in the same annual Moody's report (i.e., 1
minus recovery rate). In this case, because recovery rates are not
published by whole-letter credit rating categories in the Moody's
report, we would apply a loss severity implied by Moody's average
Defaulted Bond Recovery Rates by Lien Position for as long a period as
the Moody's report provides. Moody's 2006 report includes a table of
data on recovery rates from 1982 to 2006. We propose to adopt a
severity rate adjustment to historical corporate default rates based on
the published long-term recovery rate for senior unsecured bonds. We
considered using the recovery rates of the ``All Bonds'' category to
calculate implied loss-severity rate factors but rejected that approach
because we believe that the senior unsecured category is likely to
reflect a more accurate analog of a general obligation than a ``catch-
all'' category like ``All Bonds'' that would include senior secured
bond and subordinated bond categories in addition to the senior
unsecured category. We believe that neither of these bond lien position
categories reflects the nature of a general obligation as accurately as
the senior unsecured category.
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\3\ Hamilton, D., Ou S., Kim R., Cantor R., ``Corporate Default
and Recovery Rates, 1920--2006,'' published by Moody's Investors
Service, February 2007--the most recent edition as of April 2007.
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We considered whether the senior secured category might be more
applicable, given the mortgage loans that collateralize this
obligation. However, we believe our proposed application is justified
because, in the RBCST's Credit Loss Module, we target an estimate of
the ultimate loss rate associated with the occurrence of what are
assumed to be independent events (a corporate default and agricultural
mortgage loan pool defaults). For example, suppose that a counterparty
utilizing Farmer Mac's Off-Balance Sheet AgVantage product goes
bankrupt. We assume that the default event is uncorrelated with the
occurrence of worst-case stress in the agricultural lending sector.
Therefore, we treat the estimated loss rate calculation on the general
obligation separately from the estimated loss rate calculation on the
program loan collateral. Thus, we believe the estimation of a
counterparty default/severity rate should be done separately from and
without regard to the loan collateral and, therefore, that the senior
unsecured severity rate is most appropriate.
The following table sets forth the proposed credit loss adjustment
factors and their components (Adjustment Factor = Default Rate x
Severity Rate).\4\
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\4\ Ibid; Default Rates, page 22, Recovery Rates (Severity Rate
= 1 minus Senior Unsecured Average Recovery Rate) page 18.
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General
obligation
Whole letter rating Default rate Severity rate adjustment
(percent) (percent) factor
(percent)
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AAA............................................................. 0.89 55 0.49
AA.............................................................. 2.31 55 1.26
A............................................................... 2.90 55 1.58
BBB............................................................. 7.29 55 3.98
Below BBB and Unrated........................................... 27.39 55 15.16
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The adjustment factors would be updated quarterly as the updated
Moody's report on Default and Recovery Rates of Corporate Bond Issuers
becomes available. In the event that there is an interruption of
Moody's publication of this annual report, or FCA informs Farmer Mac it
has determined that the report has changed so much that it prevents or
calls into question the identification of suitable updated factors, the
prior year's factors would remain in effect until FCA revises the
process through rulemaking.
In addition, the loan portfolio collateral underlying Off-Balance
Sheet AgVantage volume may contain loan collateralization in excess of
the face
[[Page 52303]]
value of the note. This overcollateral may be contractually required or
it may be provided by the issuer of the guaranteed note to reduce
administrative expense associated with monitoring the eligibility of
the collateral, or both. We view overcollateral in excess of
contractually required amounts as solely an administrative convenience
for the lender in question. When there is excess overcollateral, any
loan in the overcollateral can automatically be deemed to replace a
loan that might become ineligible under the AgVantage contract without
the need for additional action on the part of either party. However,
when it is discretionary and not contractually required, the amount of
excess overcollateral provided by Farmer Mac's counterparty is subject
to change at any time. Therefore, we believe that overcollateral that
is required by contract and is not simply an administrative convenience
should be recognized in the model for the risk mitigation it provides,
but that the additional collateral provided solely for administrative
convenience should not.
Whenever overcollateral exists, we model a portfolio that is larger
than the dollar amount of Farmer Mac's guarantee obligation because
there is no direct means to segregate a specific set of loans in the
total collateral portfolio that could be considered to comprise 100
percent of the face value of the guaranteed notes. We then need an
adjustment to reduce the amount of submitted loan collateral for
purposes of estimating credit losses in the Credit Loss Module (CLM) in
order to avoid the model's recognition of the credit risk on loan
volume that is in excess of the contractually required volume.
Given the above considerations, we propose the following treatment.
The Off-Balance Sheet AgVantage volume will be modeled using separate
worksheets of the CLM with added features to:
(1) Scale the estimated losses to be commensurate with losses
associated with the contractually required minimum collateral. To
achieve this, we multiply the estimated dollar losses of each loan
after age adjustment by the ratio of the guaranteed amount to total
submitted loan collateral; and
(2) Recognize the risk mitigation provided by the contractually
required overcollateralization. To do so, expected losses after the
adjustment in ``(1)'' above are compared to the dollar amount of
contractually required overcollateral, and any estimated credit loss
dollars in excess of the contractually required overcollateral are
input in the model as loss rates applied to that pool's underlying
portfolio volume.
(3) Recognize the risk mitigation provided by the counterparty's
general obligation. This is accomplished by multiplying any
remaining losses after the adjustments in ``(1)'' and ``(2)'' above
by the appropriate general obligation adjustment factor according to
the counterparty's whole-letter issuer credit rating (set forth in
the table above) to reflect the likelihood of exhausting the
capacity of the issuer to maintain adequate collateral.
We acknowledge that the order of these adjustments may seem
incongruous with the legal structure of a given transaction, but we
believe the proposed order makes sense from a modeling perspective. For
example, the counterparty's general obligation might legally be first
in terms of the security provided in support of Farmer Mac's risk
position--followed by access to the loan collateral after an event of
default by the counterparty. However, we adjust for the risk-mitigation
of the contractually required overcollateralization first, followed by
the adjustment for the general obligation. As a practical matter, we
believe that Farmer Mac, to make itself whole on any losses after the
counterparty defaults, would first work through the overcollateral,
which would be held by a bankruptcy-remote vehicle. Only after that
overcollateral proved insufficient to make Farmer Mac whole, would it
need to pursue further recovery from the counterparty.
B. Add a Treatment for Products that Could Include a Subordinated
Interest Retained by the Primary Lender or Seller
In the event Farmer Mac introduces new products that include the
specific retention of a portion of the credit risk at either a loan
level or a pool level by the primary lender or seller, this loan volume
would also be modeled in separate worksheets of the CLM. The model
would recognize the subordinated interest by multiplying the age-
adjusted dollar losses in the subject portfolio by one minus the
percentage of the subordinated interest in order to isolate the portion
of estimated loss that Farmer Mac would incur. To the extent that such
structures include further stratification of losses, such as a cap on
the exposure to losses assumed by Farmer Mac, such stratification would
be treated in a similar manner.
C. Add Haircuts on Nonprogram Investments
Currently, the RBCST does not include a component to reflect
counterparty risk on Farmer Mac's portfolio of nonprogram investments
or its derivatives. We propose adopting a system of haircuts to the
yields on investment securities scaled according to credit ratings,
with larger haircuts applied to cash flows from investments from
issuers with lower credit ratings. We previously proposed haircuts in
our November 2005 proposed rule but did not include them in our final
rule published on December 26, 2006.
The previously proposed rule based investment haircuts on the risk-
based capital regulations of the Office of Federal Housing Enterprise
Oversight (OFHEO) (12 CFR part 1750). OFHEO's haircut levels were based
on worst-case corporate bond default rates using Depression-era default
rates and recovery rates, expanded to a 10-year period. For all
counterparties, the default rates used were 5 percent for AAA, 12.5
percent for AA, 20 percent for A, 40 percent for BBB and 100 percent
for below BBB or unrated. Severity rates used were 70 percent for
nonderivative securities, yielding net haircuts of 3.5 percent, 8.75
percent, 14.0 percent, and 28.0 percent for ratings AAA through BBB,
respectively. One hundred percent (100%) haircuts were applied to the
``BBB or unrated'' category. Our November 2005 proposal contained the
same haircut levels as in OFHEO's regulations.
We decided not to adopt the November 2005 haircut proposal out of
concern that the worst-case perspective on historical default rates is
not as appropriate for Farmer Mac as it is for the housing Government-
sponsored enterprises (GSEs). While it is plausible that worst-case
stress in the housing markets could be highly correlated with worst-
case conditions throughout the economy as exhibited by corporate bond
defaults, we believe that worst-case agricultural credit conditions
would likely be far less correlated with events of major stress in
financial markets generally. Therefore, we have based the haircuts in
this proposed rule on average bond default rates rather than worst-case
historical corporate defaults. In addition, we have chosen not to
follow a similar method for expansion of the worst case interval to the
10-year time interval. Instead, we propose a more direct reliance on
empirical evidence and base the haircuts on Moody's Average 10-year
cumulative issuer-weighted corporate default rates by whole letter
rating, adjusted by the average implied long-term severity rate for
Senior Unsecured bonds. The weighted-average yields of non-program
investment categories would be reduced by the haircut percentage phased
in linearly over the 10-year modeling horizon. The haircut levels are
the same as the loss rate adjustment factors proposed above for
application on loans underlying guaranteed notes, and like those
factors these will be updated as
[[Page 52304]]
new information becomes available. The proposed investment haircuts to
recognize counterparty risk are as follows:
------------------------------------------------------------------------
Haircut
Whole letter credit rating (percent)
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AAA........................................................ 0.49
AA......................................................... 1.26
A.......................................................... 1.58
BBB........................................................ 3.98
Below BBB and Unrated...................................... 15.16
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We propose to phase in the haircuts over the 10-year modeling
horizon, based on our assumption that defaults on investments in
response to a general downturn in the economy would not be
instantaneous but rather spread through time. Furthermore, consistent
with the OFHEO rule, we would not assign the rating of a parent company
to its unrated subsidiary because NRSROs will not impute a corporate
parent's rating to a derivative or credit enhancement counterparty in
the context of a securities transaction, and because extending that
rating to the unrated subsidiary would be tantamount to the regulator
rating the subsidiary.\5\ However, when an investment is structured as
a collateralized obligation backed by the issuer's general obligation
and, in turn, a pool of collateral, we accept the issuer rating of that
issuer as the credit rating applicable to the security. Unrated
securities that are fully guaranteed by GSEs receive the same treatment
as AAA securities. Unrated securities backed by the full faith and
credit of the U.S. Government do not receive a haircut.
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\5\ 66 FR 47730, 47777 (September 13, 2001).
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In the event that FCA approves the purchase of an unrated
investment, and portions of that investment with specific risk
characteristics are later sold by Farmer Mac, the Director will take
reasonable measures to adjust the haircut level applied to the
investment to recognize the change in the risk characteristics of the
retained portion. In taking these measures, the Director will consider
the approaches taken to address capital requirements related to similar
investments that have been adopted by other Federal financial
institution regulators.
We propose to apply the haircuts to yields on a weighted-average
basis by investment categories established in the ``Data Inputs''
worksheet of the RBCST, e.g., commercial paper, corporate debt and
asset-backed securities, agency mortgaged-backed securities and
collateralized mortgage obligations. This treatment would require
Farmer Mac to calculate the weighted-average haircut by investment
category to be applied to the weighted-average yields for each
investment category and to input the haircuts into the ``Data Inputs''
worksheet. The proposed haircuts are set forth in the table in
paragraph e. of section 4.1 in the appendix A, subpart B of part 652.
We considered proposing a similar haircut on derivative securities,
on the ground that credit stress that impacts Farmer Mac's nonprogram
investment portfolio would reasonably be expected to affect its
derivatives counterparties and its terms of access to the swap
market.\6\ We believe a more appropriate approach to haircutting
derivatives may be to reflect lost payments on defaulted derivative
securities in a net-receive position, as well as the ``replacement
cost''--i.e., the additional expense associated with the replacement of
derivative positions when the counterparty defaults and the market
value of the derivative has increased since the date the defaulted
derivative contract was executed. Such an increased market value would
be to Farmer Mac's benefit when the counterparty does not default, but
to its detriment when it does default. The Agency plans to address this
issue in future revisions of the RBCST and specifically requests
comment on the most appropriate approach to incorporate into the RBCST
such ``replacement cost'' risk relating to derivative securities.
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\6\ The term ``derivative'' refers to over-the-counter financial
derivative instruments used by Farmer Mac to hedge interest rate
risk and synthetically extend the term structure of its debt to
reduce funding costs.
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D. Improve the Estimate of Carrying Costs of Nonperforming Loans by
Revising LLRT Assumptions
The RBCST was originally developed with a loss-severity estimate
that assumes it would take Farmer Mac 1 year to work through problem
loans from the point of default through final disposition. An estimate
was used because, at the time of development of the RBCST, historical
nonperforming loan resolution timing data from Farmer Mac were not
sufficient. Farmer Mac data collected since that time indicate that an
adjustment to the 1-year assumption to recognize Farmer Mac's actual
historical experience is appropriate. If the actual historical time
interval is longer than the current model's assumption, the capital
needs for carrying nonperforming assets are likely understated in the
model. Therefore, we propose amendments to the model to reflect costs
associated with any additional time period over which Farmer Mac has
carried nonperforming loans on average throughout its history. The LLRT
is the weighted average time in fractions of 1 year that Farmer Mac has
carried nonperforming loans from the date of the last interest payment,
the Interest Paid-Through Date (ITPD) and the date the loan is finally
resolved. This proposed LLRT differs from that proposed in November
2005 in the method used to estimate the LLRT period, as described in
detail below.
In the final rule preamble to RBCST Version 2.0 published December
26, 2006, we discussed our intent to review further the scaling factor
used to estimate the unpaid premium balance associated with estimated
loan loss dollar volume. After further review, we believe that basing
the scaling factor on the total current portfolio average relationship
between origination loan amount and current outstanding loan amounts,
as originally proposed, is more appropriate than basing the scaling
factor on that same relationship among the small universe of loans that
have been through the default and resolution process historically. Our
view is based on the small size of the latter data set. This proposed
rule also clarifies the calculation of the LLRT period and incorporates
additional information provided by Farmer Mac regarding its actual
historical LLRT experience.
With the exception of the 1-year period assumed in the loss-
severity rate, the current RBCST under a steady-state scenario requires
backfilling of loan loss volume with like assets, without recognizing
any of the costs associated with carrying loans as non-earning, but
funded, assets. Under the proposed rule, the RBCST would reflect
additional costs associated with carrying the unpaid principal balance
of nonperforming loans during the portion of the LLRT period that
exceeds the 1-year assumption.
The change would be incorporated into the RBCST as follows. Off-
balance sheet loans with estimated losses are assumed to be purchased
from the off-balance sheet portfolio and fully funded at the short-term
cost of funds rate used in the model, and any associated guarantee fee
income is reversed. The short-term cost of funds (adjusted to
incorporate interest rate shock effects) is used to estimate this
additional funding cost in recognition of Farmer Mac's actual business
practices. On-balance sheet loans generating losses are also removed
from the interest earnings calculations and continue to generate
interest expense at the blended cost of long- and short-term funds for
the
[[Page 52305]]
portion of the LLRT period that exceeds 1 year. In response to a
comment on the original proposed rule, the rates are not adjusted to
incorporate interest rate shock effects in this proposed rule, in
contrast to the original proposal of this revision, in recognition that
these rates would be in place at the time of the onset of the stress.
The model would continue to backfill new loans at the point of loan
resolution to retain its steady-state specification.
The proposed revisions involve two principal changes from the
current RBCST. First, the date of backfill would be moved to a point in
time that more accurately reflects Farmer Mac's actual experience. The
model would then capture the additional costs of carrying loans in a
non-interest earning category on the balance sheet. Second, the
guarantee fee income would be reduced by the weighted average guarantee
fee in the portfolio multiplied by the relevant off-balance sheet loan
volume over the portion of the LLRT period that exceeds one year. The
LLRT would become a data input to be updated with each quarterly
submission of the model.
When we first proposed to revise this component in November 2005,
we received several comments that noted the need for greater clarity in
the LLRT's calculation formula. We have attempted to provide greater
clarity in the proposed LLRT calculation as follows:
(1) Assemble in a spreadsheet individual loan level data for all
historical nonperforming loans that migrated from the program loan
portfolio into nonaccrual status. Identify the ``resolution type,''
i.e., whether the loan resolved by the borrower bringing the loan
current or paying off the loan in full, or whether the loan was
foreclosed and liquidated prior to being placed in real estate owned
(REO), or placed in REO. For each of these resolution types, include
the associated dates (e.g., the date the loan was brought current,
paid off, liquidated prior to REO, or placed in REO);
(2) Include the following data elements:
Loan Number
Origination Date
Original Balance
Payment Frequency
Interest Paid Through Date (ITPD)
Non-Accrual Date
Unpaid Principal Balance (UPB) at Non-Accrual Date
Accrued Interest Through Non-Accrual Date
Resolution-type Code (assign numerical code to each type listed in
the paragraph above)
Resolution Date
Net Gain/Loss Amount
(3) Remove loan records with missing data elements in ``(2)''
above from the database for purposes of the LLRT calculation;
(4) Calculate the number of days between the ITPD and the
Resolution Date for each loan;
(5) Divide that number of days by 365. The quotient is the LLRT
for each loan. Calculate the weighted-average LLRT using weights
based on the total obligation at the Non-Accrual Date (Unpaid
Principal Balance at Non-Accrual) and input the resulting weighted-
average LLRT into the model's Data Inputs worksheet.
(6) For nonperforming loans that have not resolved, include
these loans in the calculation using the quarter end ``as of'' date
of each model submission in place of the resolution date, but
include them only if the calculated time interval to the ``as of''
date is longer than the calculated average LLRT when these records
are excluded. In other words, if the carrying time interval is not
longer than the calculated LLRT using the data set excluding these
records, the records should be excluded from the final LLRT
calculation. This will prevent loan records that have not gone
completely through the resolution process from exerting a downward
influence on the LLRT but allow them to have an upward influence if
the unresolved loans' LLRTs are greater than the calculated average
before inclusion of such loans.
Farmer Mac commented on our November 2005 proposal that the
application of funding rates to the calculation of the carrying cost of
nonperforming loans is inconsistent with its actual practice and that
the proposed change should be withdrawn. Farmer Mac's comment focused
on three aspects of the proposed LLRT change. We will summarize those
three and then provide a discussion of each with our response. In this
discussion, we refer to liabilities due in 1 year or less as short-term
liabilities and to liabilities due after 1 year as ``long-term'' debt.
The comment's three points were: (a) Farmer Mac does not fund
nonperforming loans using a certain tenor of debt with perfect
consistency, (b) Farmer Mac can effectively change the cost of funds of
any nonperforming on-balance sheet loan by employing a ``cross-
funding'' strategy, and (c) the model should not fund on-balance sheet,
nonperforming loans at the shocked interest rates under the interest
rate risk stress component in the model because these loans would, by
having been on the balance sheet at the point in time when rates are
shocked, have already been funded at pre-shock rates.
Farmer Mac acknowledged that purchases of nonperforming, off-
balance sheet loans would be done at short-term rates in the
preponderance of cases, which is consistent with this proposed rule.
However, Farmer Mac stated that, in actual practice, it uses a mix of
short- and long-term debt because it decides on the appropriate funding
term for such purchases based on the existing yield curve conditions
and REO disposition expectations. While we accept the premise that in
certain cases Farmer Mac might fund such purchases using longer term
debt, we believe these cases are likely to be rare exceptions (e.g.,
steeply inverted yield curves) and do not create a sufficiently
compelling reason to add more complexity to the model such as, for
example, a new data input for average off-balance sheet nonperforming
loan funding rates. Therefore, we made no change to this specific
aspect of the model in this proposed rule.
Farmer Mac commented that it could employ a cross-funding strategy
to effectively fund on-balance sheet non-performing loans at the short-
term debt rates such as it uses in most cases of purchases of off-
balance sheet nonperforming loans. While we agree that such
opportunities could occur, we believe that assuming that Farmer Mac
would always have the opportunity to purchase new program assets with
the same size and expected life characteristics as on-balance sheet
nonperforming loans is too broad an assumption to incorporate into the
model. While it is possible that Farmer Mac could execute a similar
rebalancing and reassignment of debt tenors among its program assets by
adjustments to its ongoing daily funding selections, we would also view
such a potentially complex incorporation of this contingent scenario
into the model as unjustified for the added level of accuracy it might
provide in certain cases. Therefore, we have made no change to the
funding rates applied to calculate carrying cost of on-balance sheet
nonperforming loans in this proposed rule.
Finally, Farmer Mac commented that the model should not fund on-
balance sheet, nonperforming loans at shocked interest rate levels
established by statute because these loans would, by having been
already on the balance sheet at the point in time when rates are
shocked, have been funded at pre-shocked rates. We agree with the
comment and have revised the cost of funds applied to on-balance sheet
nonperforming loans during the LLRT to pre-shock blended long- and
short-term cost of funds rates in this proposed rule.
The proposed LLRT revisions are forward-looking only. In other
words, actual loans that defaulted in year zero and are in their second
year of nonperforming status in year one of the model's 10-year time
horizon are not included in the proposed LLRT revision, and therefore
no adjustment to restate current balance sheet amounts is needed. We
considered an approach involving such a restatement but rejected it as
unnecessarily complex. We note that our proposed revision to more
accurately reflect the carrying cost of nonperforming loans results in
less
[[Page 52306]]
additional stress in a down-rate interest rate risk environment. This
result is appropriate, as it would be less costly to fund nonperforming
loans when interest rates are relatively low.
We propose one further adjustment to complete the LLRT revision.
The RBCST is sometimes referred to as an ``origination loan model''
because it performs its loss estimation based on origination loan
amounts and dates. The model does not incorporate loan interest rates
or amortization of the loan portfolio. However, implementation of the
LLRT revision would require us to make an estimate of loan amortization
because it would be inaccurate to estimate the additional carrying cost
associated with the LLRT period by applying the appropriate cost of
funds to a loan's origination amount. We propose to use the portfolio
average principal amortization to make this adjustment (i.e., total
portfolio current scheduled principal balance divided by total
origination balance). We would also incorporate into the blended rate
used to calculate the carrying cost of nonperforming on-balance sheet
loans an increment of interest expense associated swap expense
according to Farmer Mac's practice of combining debt and swap contracts
to fund loans.
E. Technical Changes to Improve Formatting and Clarity of Cell Labeling
and Submission Deadlines
In the RBCST spreadsheet, we have relocated the quarter-end date
selection pull-down menu from the Assumptions and Relationships page to
the Capital worksheet for convenience. We have also made line item
labeling changes to enhance clarity in both the CLM and the RBC
modules. We have also revised Sec. 652.85 to update submission
deadlines to be the same as the filing deadlines of Farmer Mac's public
disclosures on Forms 10-Q and 10-K required by the Securities and
Exchange Commission.
IV. Impact of Proposed Changes on Required Capital
We have evaluated the impact of the proposed changes to the
currently active version of the model, Version 2.0. Our tests indicate
that changes related to the LLRT would have the most significant impact
on risk-based capital calculated by the model. The table below provides
an indication of the impact of the revisions in the quarter ended March
31, 2007. The lines labeled ``General Obligation Adjustment'',
``Investment Haircuts'', and ``Carrying Costs of Nonperforming Loans''
present the impacts if only that revision were made to the current
version, and the column labeled ``Difference'' calculates the impact of
that individual change for the quarter ended March 31, 2007, compared
to the requirement calculated using the currently active Version 2.0.
The bottom line presents the impact of all proposed revisions in
Version 3.0. As the table shows, the individual estimated impacts do
not have an additive relationship to the total impact on the model
output. This is due to the interrelationship of the changes with one
another when they are combined in Version 3.0.
------------------------------------------------------------------------
Calculated regulatory capital ($ in
thousands) 3/31/2007 Difference
------------------------------------------------------------------------
RBCST Version 2.0....................... 80,831 ..............
Treatment of Loans Backed by an 73,244 -7,587
Obligation of the Counterparty and
Contractually Required Overcollateral..
Investment Haircuts..................... 83,922 3,091
Carrying Cost of Nonperforming Loans.... 105,170 24,340
RBCST Version 3.0 Change Impacts........ 100,079 19,249
------------------------------------------------------------------------
V. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), FCA hereby certifies the rule will not have a
significant economic impact on a substantial number of small entities.
Farmer Mac has assets and annual income over the amounts that would
qualify it as a small entity. Therefore, Farmer Mac is not considered a
``small entity'' as defined in the Regulatory Flexibility Act.
List of Subjects in 12 CFR Part 652
Agriculture, Banks, banking, Capital, Investments, Rural areas.
For the reasons stated in the preamble, part 652 of chapter VI,
title 12 of the Code of Federal Regulations is proposed to be amended
to read as follows:
PART 652--FEDERAL AGRICULTURAL MORTGAGE CORPORATION FUNDING AND
FISCAL AFFAIRS
1. The authority citation for part 652 continues to read as
follows:
Authority: Secs. 4.12, 5.9, 5.17, 8.11, 8.31, 8.32, 8.33, 8.34,
8.35, 8.36, 8.37, 8.41 of the Farm Credit Act (12 U.S.C. 2183, 2243,
2252, 2279aa-11, 2279bb, 2279bb-1, 2279bb-2, 2279bb-3, 2279bb-4,
2279bb-5, 2279bb-6, 2279cc); sec. 514 of Pub. L. 102-552, 106 Stat.
4102; sec. 118 of Pub. L. 104-105, 110 Stat. 168.
Subpart B--Risk-Based Capital Requirements
2. Amend Sec. 652.65 by redesignating paragraph (b)(5) as new
paragraph (b)(6) and adding a new paragraph (b)(5) to read as follows:
Sec. 652.65 Risk-based capital stress test.
* * * * *
(b) * * *
(5) You will further adjust losses for loans that collateralize the
general obligation of Off-Balance Sheet AgVantage volume, and for loans
where the program loan counterparty retains a subordinated interest in
accordance with Appendix A to this subpart.
* * * * *
3. Amend Sec. 652.85 by revising paragraph (d) to read as follows:
Sec. 652.85 When to report the risk-based capital level.
* * * * *
(d) You must submit your quarterly risk-based capital report for
the last day of the preceding quarter by the earlier of the reporting
deadlines for Securities and Exchange Commission Forms 10-K and 10-Q,
or the 40th day after each of the quarter's ending March 31st, June
30th, and September 30th, and the 75th day after the quarter ending on
December 31st.
4. Appendix A of subpart B, part 652 is amended by:
a. Revising the table of contents;
b. Revising the first and second sentences of section 2.0;
c. Redesignating existing section 2.4 as new section 2.5;
d. Adding a new section 2.4;
e. Revising section 4.1 e.;
f. Revising the last sentence of section 4.2 b.(3) introductory
text;
g. Redesignating existing section 4.2 b.(3)(C) and (D) as new
paragraph (3)(F) and (G);
h. Adding new section 4.2 b. (3)(C), (D), and (E);
i. Revising section 4.4;
j. Revising section 4.5 a.;
k. Removing the word ``unretained'' and adding in its place, the
word
[[Page 52307]]
``retained'' in the ninth sentence of section 4.6 b.
Appendix A--Subpart B of Part 652--Risk-Based Capital Stress Test
1.0 Introduction.
2.0 Credit Risk.
2.1 Loss-Frequency and Loss-Severity Models.
2.2 Loan-Seasoning Adjustment.
2.3 Example Calculation of Dollar Loss on One Loan.
2.4 Treatment of Loans Backed by an Obligation of the Counterparty
and Loans for which Pledged Loan Collateral Volume Exceeds Farmer
Mac-Guaranteed Volume.
2.5 Calculation of Loss Rates for Use in the Stress Test.
3.0 Interest Rate Risk.
3.1 Process for Calculating the Interest Rate Movement.
4.0 Elements Used in Generating Cashflows.
4.1 Data Inputs.
4.2 Assumptions and Relationships.
4.3 Risk Measures.
4.4 Loan and Cashflow Accounts.
4.5 Income Statements.
4.6 Balance Sheets.
4.7 Capital.
5.0 Capital Calculations.
5.1 Method of Calculation.
* * * * *
2.0 Credit Risk.
Loan loss rates are determined by applying the loss-frequency
equation and the loss-severity factor to Farmer Mac loan-level data.
Using this equation and severity factor, you must calculate loan
losses under stressful economic conditions assuming Farmer Mac's
portfolio remains at a ``steady state.'' * * *
* * * * *
2.4 Treatment of Loans Backed by an Obligation of the Counterparty,
and Loans for which Pledged Loan Collateral Volume Exceeds Farmer
Mac-Guaranteed Volume.
You must calculate the age-adjusted loss rates for these loans
that includes adjustments to scale losses according to the
proportion of total submitted collateral to the guaranteed amount as
provided for in the ``Dollar Losses'' column of the transformed
worksheets in the Credit Loss Module based on new data inputs
required in the ``Coefficients'' worksheet of the Credit Loss
Module. Then, you must adjust the calculated loss rates as follows.
a. For loans in which the seller retains a subordinated
interest, subtract from the total estimated age-adjusted dollar
losses on the pool the amount equal to current unpaid principal
times the subordinated interest percentage.
b. Some pools of loans underlying specific transactions could
include loan collateral volume pledged to Farmer Mac in excess of
Farmer Mac's guarantee amount (``overcollateral''). Overcollateral
can be either: (i) Contractually required according to the terms of
the transaction, or (ii) not contractually required, but pledged in
addition to the contractually required amount at the discretion of
the counterparty, often for purposes of administrative convenience
regarding the collateral substitution process, or (iii) both (i) and
(ii).
1. If a pool of loans includes collateral pledged in excess of
the guaranteed amount, you must adjust the age-adjusted, loan-level
dollar losses by a factor equal to the ratio of the guarantee amount
to total submitted collateral. For example, consider a pool of two
loans serving as security for a Farmer Mac guarantee on a note with
a total issuance face value of $2 million and on which the
counterparty has submitted 10-percent overcollateral. The two loans
in the example have the following characteristics and adjustments.
----------------------------------------------------------------------------------------------------------------
Guarantee
Age-adjusted Estimated age- amount scaling Losses
Loan Origination loss rate adjusted adjustment (2/ adjusted for
balance (percent) losses 2.2) overcollateral
(percent)
----------------------------------------------------------------------------------------------------------------
1............................... $1,080,000 7.0 $75,600 90.91 $68,727
2............................... 1,120,000 5.0 56,000 90.91 50,909
----------------------------------------------------------------------------------------------------------------
2. If a pool of loans includes collateral pledged in excess of
the guaranteed amount that is required under the terms of the
transaction, you must further adjust the dollar losses as follows.
Calculate the total losses on the subject portfolio of loans after
age adjustments and any adjustments related to total submitted
overcollateral as described in ``1.'' above. Calculate the total
dollar amount of contractually required overcollateral in the
subject pool. Subtract the total dollars of contractually required
overcollateral from the adjusted total losses on the subject pool.
If the result is less than or equal to zero, input a loss rate of
zero for this transaction pool in the Data Inputs worksheet of the
RBCST. A new category must be created for each such transaction in
the RBCST. If the loss rate after subtracting contractually required
overcollateral is greater than zero, proceed to additional
adjustment for the risk-reducing effects of the counterparty's
general obligation described in ``3.'' below.
3. Loans with a positive loss estimate remaining after
adjustments in ``1.'' and ``2.'' above, are further adjusted for the
security provided by the general obligation of the counterparty. To
make this adjustment, multiply the estimated dollar losses remaining
after adjustments in ``1.'' and ``2.'' above by the appropriate
general obligation adjustment factor based on the counterparty's
whole-letter issuer credit rating by a nationally recognized
statistical rating organization (NRSRO).
The following table sets forth the general obligation adjustment
factors and their components by whole-letter credit rating
(Adjustment Factor = Default Rate x Severity Rate).\15\
---------------------------------------------------------------------------
\15\ Hamilton, D., Ou S., Kim R., Cantor R., ``Corporate Default
and Recovery Rates, 1920-2006,'' published by Moody's Investors
Service, February 2007--the most recent edition as of April 2007;
Default Rates, page 22, Recovery Rates (Severity Rate = 1 minus
Senior Unsecured Average Recovery Rate) page 18.
----------------------------------------------------------------------------------------------------------------
General
obligation
Whole-letter rating Default rate Severity rate adjustment
(percent) (percent) factor
(percent)
----------------------------------------------------------------------------------------------------------------
AAA............................................................. 0.89 55 0.49
AA.............................................................. 2.31 55 1.26
A............................................................... 2.90 55 1.58
BBB............................................................. 7.29 55 3.98
Below BBB and Unrated........................................... 27.39 55 15.16
----------------------------------------------------------------------------------------------------------------
The adjustment factors will be updated annually as Moody's
annual report on Default and Recovery Rates of Corporate Bond
Issuers becomes available, normally in January or February of each
year. In the event that there is an interruption of Moody's
[[Page 52308]]
publication of this annual report, or FCA determines that the format
of the report has changed enough to prevent or call into question
the identification of updated factors, the prior year's factors will
remain in effect until FCA revises the process through rulemaking.
4. Continuing the previous example, the pool contains two loans
on which Farmer Mac is guaranteeing a total of $2 million and with
total submitted collateral of 110 percent of the guaranteed amount.
Of the 10-percent total overcollateral, 5 percent is contractually
required under the terms of the transaction. The pool consists of
two loans of slightly over $1 million. Total overcollateral is
$200,000, of which $100,000 is contractually required. The
counterparty has a single ``A'' credit rating, and after adjusting
for contractually required overcollateral, estimated losses are
greater than zero. The net loss rate is calculated as described in
the steps in the table below.
------------------------------------------------------------------------
Loan A Loan B
------------------------------------------------------------------------
1........... Guaranteed Volume....... $2,000,000
2........... Origination Balance of 2- $1,080,000 $1,120,000
Loan Portfolio.
3........... Age-adjusted Loss Rate.. 7% 5%
4........... Estimated Age-adjusted $75,600 $56,000
Losses.
5........... Guarantee Volume Scaling 90.91% 90.91%
Factor.
6........... Losses Adjusted for $68,727 $50,909
Total Overcollateral.
7........... Contractually required $100,000
Overcollateral on Pool
(5%).
8........... Net Losses on Pool $19,636
Adjusted for
Contractually Required
Overcollateral.
9........... General Obligation 1.58%
Adjustment Factor for
``A'' Issuer.
10.......... Losses Adjusted for $310
``A'' General
Obligation.
11.......... Loss Rate Input in the 0.02%
RBCST for this Pool.
------------------------------------------------------------------------
The net, fully adjusted losses are distributed over time on a
straight-line basis. When a transaction reaches maturity within the
10-year modeling horizon, the losses are distributed on a
straightline over a timepath that ends in the year of the
transaction's maturity.
* * * * *
4.1 Data Inputs.
* * * * *
e. Weighted Haircuts for Non-Program Investments. For non-
program investments, the stress test adjusts the weighted average
yield data referenced in section 4.1 b. to reflect counterparty
risk. Non-program investments are defined in Sec. 652.5. The
Corporation must calculate the haircut to be applied to each
investment based on the lowest whole-letter credit rating the
investment received from a NRSRO using the haircut levels in the
following two tables. The first table provides the mappings of NRSRO
ratings to whole-letter ratings for purposes of applying haircuts.
Any ``+'' or ``-'' signs appended to NRSRO ratings that are not
shown in the table should be ignored for purposes of mapping NRSRO
ratings to FCA whole-letter ratings. The second table provides the
haircut levels by whole-letter rating category.
FCA Whole-Letter Credit Ratings Mapped to Rating Agency Credit Ratings
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
FCA Ratings Category.......... AAA........... AA............ A............. BBB........... Below BBB and
Unrated.
Standard & Poor's Long-Term... AAA........... AA............ A............. BBB........... Below BBB and
Unrated.
Fitch Long-Term............... AAA........... AA............ A............. BBB........... Below BBB and
Unrated.
Moody's Long-Term............. Aaa........... Aa............ A............. Baa........... Below Baa and
Unrated.
Standard & Poor's Short-Term.. A-1+.......... A-1........... A-2........... A-3........... SP-3, B, or
SP-1+......... SP-1.......... SP-2.......... Below and
Unrated.
Fitch Short-Term.............. F-1+.......... F-1........... F-2........... F-3........... Below F-3 and
Unrated.
Moody's....................... Prime-1....... Prime-2....... Prime-3....... Not Prime, SG
MIG1.......... MIG2.......... MIG3.......... and Unrated.
VMIG1......... VMIG2......... VMIG3.........
Fitch Bank Ratings............ A............. B............. C............. D............. E
A/B........... B/C........... C/D........... D/E.
Moody's Bank Financial A............. B............. C............. D............. E.
Strength Rating.
----------------------------------------------------------------------------------------------------------------
FARMER MAC RBCST Maximum Haircut by Ratings Classification
------------------------------------------------------------------------
Non-program
investment
counterparties
Ratings classification (excluding
derivatives)
(percent)
------------------------------------------------------------------------
Cash.................................................... 0.00
AAA..................................................... 0.49
AA...................................................... 1.26
A....................................................... 1.58
BBB..................................................... 3.98
Below BBB and Unrated................................... 15.16
------------------------------------------------------------------------
Certain special cases will receive the following treatment. For an
investment structured as a collateralized obligation backed by the
issuer's general obligation and, in turn, a pool of collateral,
reference the Issuer Rating or Financial Strength Rating of that
issuer as the credit rating applicable to the security. Unrated
securities that are fully guaranteed by Government-sponsored
enterprises (GSE) such as the Federal National Mortgage Corporation
(Fannie Mae) will receive the same treatment as AAA securities.
Unrated securities backed by the full faith and credit of the U.S.
Government will not receive a haircut.
If FCA approves the purchase of an unrated investment, and
portions of that investment are later sold by Farmer Mac according
to their specific risk characteristics, the Director will take
reasonable measures to adjust the haircut level applied to the
investment to recognize the change in the risk characteristics of
the retained portion. The Director will consider similar methods for
dealing with capital requirements adopted by other Federal financial
institution regulators in similar situations.
Individual investment haircuts must then be aggregated into
weighted-average haircuts by investment category and submitted in
the ``Data Inputs'' worksheet. The spreadsheet uses these inputs to
reduce the weighted-average yield on the investment category to
account for counterparty insolvency according to a 10-year linear
phase-in of the haircuts. Each asset account category identified in
this data requirement is discussed in section 4.2, ``Assumptions and
Relationships.''
* * * * *
4.2 Assumptions and Relationships
* * * * *
b. * * *
(3) Elements related to income and expense assumptions. * * *
These parameters are the gain on agricultural mortgage-backed
securities (AMBS) sales, miscellaneous income, operating expenses,
reserve
[[Page 52309]]
requirement, guarantee fees and loan loss resolution timing.
* * * * *
(C) The stress test assumes that short-term cost of funds is
incurred in relation to the amount of defaulting loans purchased
from off-balance sheet pools. The remaining unpaid principal balance
on this loan volume is the origination amount reduced by the
proportion of the total portfolio that has amortized as of the end
of the most recent quarter. This volume is assumed to be funded at
the short-term cost of funds and this expense continues for a period
equal to the loan loss resolution timing period (LLRT) period minus
1. We will calculate the LLRT period from Farmer Mac data. In
addition, during the LLRT period, all guarantee income associated
with the loan volume ceases.
(D) The stress test generates no interest income on the
estimated volume of defaulted on-balance sheet loan volume required
to be carried during the LLRT period, but continues to accrue
funding costs during the remainder of the LLRT period.
(E) You must update the LLRT period in response to changes in
the Corporation's actual experience with each quarterly submission.
* * * * *
4.4 Loan and Cashflow Accounts
The worksheet labeled ``Loan and Cashflow Data'' contains the
categorized loan data and cashflow accounting relationships that are
used in the stress test to generate projections of Farmer Mac's
performance and condition. As can be seen in the worksheet, the
steady-state formulation results in account balances that remain
constant except for the effects of discontinued programs, maturing
Off-Balance Sheet AgVantage positions, and the LLRT adjustment. For
assets with maturities under 1 year, the results are reported for
convenience as though they matured only one time per year with the
additional convention that the earnings/cost rates are annualized.
For the pre-1996 Act assets, maturing balances are added back to
post-1996 Act account balances. The liability accounts are used to
satisfy the accounting identity, which requires assets to equal
liabilities plus owner equity. In addition to the replacement of
maturities under a steady state, liabilities are increased to
reflect net losses or decreased to reflect resulting net gains.
Adjustments must be made to the long- and short-term debt accounts
to maintain the same relative proportions as existed at the
beginning period from which the stress test is run with the
exception of changes associated with the funding of defaulted loans
during the LLRT period. The primary receivable and payable accounts
are also maintained on this worksheet, as is a summary balance of
the volume of loans subject to credit losses.
4.5 Income Statements
a. Information related to income performance through time is
contained on the worksheet named ``Income Statements.'' Information
from the first period balance sheet is used in conjunction with the
earnings and cost-spread relationships from Farmer Mac supplied data
to generate the first period's income statement. The same set of
accounts is maintained in this worksheet as ``Loan and Cashflow
Accounts'' for consistency in reporting each annual period of the
10-year stress period of the test with the exception of the line
item labeled ``Interest reversals to carry loan losses'' which
incorporates the LLRT adjustment to earnings from the ``Risk
Measures'' worksheet. Loans that defaulted do not earn interest or
guarantee any commitment fees during LLRT period. The income from
each interest-bearing account is calculated, as are costs of
interest-bearing liabilities. In each case, these entries are the
associated interest rate for that period multiplied by the account
balances.
Dated: September 7, 2007.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. E7-18014 Filed 9-12-07; 8:45 am]
BILLING CODE 6705-01-P