Modeling the Credit Risk in Agricultural Mortgages: A Critical Review of the Farm Credit Administration’s Credit Risk Model for Farmer Mac

Abstract: Farmer Mac is the GSE charged with creating a secondary market in loans backed by agricultural real estate. The Farm Credit Administration (FCA) has estimated a credit risk model for agricultural mortgages. This model is a key determinant of Farmer Mac’s risk based capital (RBC) requirement. This paper reviews both the structure of FCA’s credit risk model, and the data used by FCA’s contractors to estimate the model. Serious concerns are raised about both data quality and the econometric specification in use. Under Basle II, RBC models will proliferate. Assessing the validity of credit risk models will become increasingly important.

Keywords: Basle II; risk based capital; credit risk; agricultural mortgage finance (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-rmg
Date: Written 2004-09-01
Note: Type of Document - pdf; pages: 27
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpfi:0409001

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