October 4, 2024
Rafael Bernal
Sun Community Federal Credit Union
1068 Broadway
El Centro, California 92243
RE: Permissibility of Farmer Mac Stock
Dear Mr. Bernal:
Thank you for your recent letter. You have asked for confirmation that a federal credit union (“FCU”) may purchase shares of common stock of the Federal Agricultural Mortgage Corporation (“Farmer Mac”). Yes. The Agricultural Credit Act of 1987 (“Agricultural Credit Act”) authorizes this investment for FCUs. However, the investment is limited to the minimum amount of common stock required for FCUs to serve as originators or sellers of agricultural loans to Farmer Mac.
As background, Farmer Mac was created as a federally chartered instrumentality of the United States.1 Farmer Mac provides a secondary mortgage market for agricultural mortgage lenders and operates the Loan Purchase and Long-term Purchase Commitment mortgage loan program (the “Program”). It is our understanding from your letter that an FCU’s primary role in the secondary market for agricultural loans is as loan originator or seller of loans to Farmer Mac. The Agricultural Credit Act defines the entities that may participate in Farmer Mac’s loan purchase programs and expressly includes credit unions.2 The Agricultural Credit Act also permits Farmer Mac to require each originator to make such nonrefundable capital contributions as are reasonable and necessary to meet its administrative expenses. Farmer Mac must also issue to each originator voting common stock evidencing any required capital contributions.3 In a conversation with NCUA staff, Farmer Mac’s representative stated that in order to participate in the Program, generally, an FCU must purchase Farmer Mac common stock.
In 1988, the NCUA’s OGC first considered whether FCUs were permitted to purchase Farmer Mac stock under either the Federal Credit Union Act (“FCU Act”) or the Agricultural Credit Act.4 OGC advised that the purchase was not permissible as an express power as Farmer Mac stock was not directly authorized under the FCU Act.5 The opinion also advised that while the Agricultural Credit Act defined credit unions to act as loan originators, it did not expressly provide FCUs authority to purchase Farmer Mac stock. The opinion further stated that FCUs were not required to purchase Farmer Mac stock to act as originators and that credit unions could serve in their role as originators to Farmer Mac without purchasing stock.
However, Farmer Mac now requires loan originators to purchase shares of Farmer Mac common stock. In addition to the investment authorities in the FCU Act, the NCUA has historically found that FCUs may make investments that are authorized by a federal law other than the FCU Act, provided the basis for FCU investment is clearly set forth in the other law, as we believe it is here. While the Agricultural Credit Act does not expressly authorize FCUs, in contrast to national banking associations, to purchase Farmer Mac stock, it specifically authorizes FCUs to act as originators and specifically authorizes Farmer Mac to require each originator to make such nonrefundable capital contributions as are reasonable and necessary to meet the administrative expenses of Farmer Mac.6 Farmer Mac has exercised its statutory authority by requiring each originator to purchase a specified amount of shares of Farmer Mac common stock.7 Therefore, it is our opinion that the Agricultural Credit Act establishes the authority for FCU investment in shares of Farmer Mac common stock provided it is necessary to participate in the Program. Any such investment must be limited to the minimum amount of stock required to act as a loan originator under the Agricultural Credit Act. This opinion supersedes OGC Op. 88-1229j.
Accordingly, we conclude your FCU may purchase and hold Farmer Mac common stock, as described above, unless NCUA determines holding the stock is a safety and soundness concern. This opinion does not permit an FCU to buy and sell Farmer Mac stock, unless it is for the sole purpose of complying with the requirements for a loan originator under the Agricultural Credit Act.
Sincerely,
/s/
Frank Kressman
General Counsel
Footnotes
1 12 U.S.C. § 2279aa-l(a)(1).
2 12 U.S.C. § 2279aa(6). The term “originator” means any Farm Credit System institution, bank, insurance company, business and industrial development company, savings and loan association, association of agricultural producers, agricultural cooperative, commercial finance company, trust company, credit union, or other entity that originates and services agricultural mortgage loans.
3 12 U.S.C. § 2279aa-4(b).
4 OGC Op. 88-1229j.
5 12 U.S.C. §§ 1757(7), (8) and (15).
6 Note, the Agricultural Credit Act specifically addresses investment in securities guaranteed by Farmer Mac, but it does not directly address the issue of investment in the common stock of Farmer Mac by credit unions. The Agricultural Credit Act states that national banking associations may purchase and hold Class A stock but does not limit eligibility to such institutions.
7 It is our understanding that the minimum amount of required shares is based on an institution’s asset size and currently originators are only required to purchase a nominal number of shares.