(a) General authority. You may purchase and hold mortgage securities that are issued or guaranteed as to both principal and interest by the Federal Agricultural Mortgage Corporation (Farmer Mac securities). You may purchase and hold Farmer Mac securities for the purposes of managing credit and interest rate risks, and furthering your mission to finance agriculture. The total value of your Farmer Mac securities cannot exceed your total outstanding loans, as defined by §615.5131.

(b) Board and management responsibilities. Your board of directors must adopt written policies that will govern your investments in Farmer Mac securities. All delegations of authority to specified personnel or committees must state the extent of management's authority and responsibilities for managing your investments in Farmer Mac securities. The board of directors must also ensure that appropriate internal controls are in place to prevent loss, in accordance with §615.5133(e). Management must submit quarterly reports to the board of directors on the performance of all investments in Farmer Mac securities. Annually, your board of directors must review these policies and the performance of your Farmer Mac securities and make any changes that are needed.

(c) Policies. Your board of directors must establish investment policies for Farmer Mac securities that include your:

(1) Objectives for holding Farmer Mac securities.

(2) Credit risk parameters including:

(i) The quantities and types of Farmer Mac mortgage securities that are collateralized by qualified agricultural mortgages, rural home loans, and loans guaranteed by the Farm Service Agency.

(ii) Product and geographic diversification for the loans that underlie the security; and

(iii) Minimum pool size, minimum number of loans in each pool, and maximum allowable premiums or discounts on these securities.

(3) Liquidity risk tolerance and the liquidity characteristics of Farmer Mac securities that are suitable to meet your institutional objectives. A bank may not include Farmer Mac mortgage securities in the liquidity reserve maintained to comply with §615.5134.

(4) Market risk limits based on the effects that the Farmer Mac securities have on your capital and earnings.

(d) Stress test. You must perform stress tests, in accordance with §615.5133(h)(1)(iii) and (h)(4), on mortgage securities, issued or guaranteed by Farmer Mac, that are backed by loans that you did not originate.

(e) You. Means a Farm Credit bank, association, or service corporation.

[64 FR 28899, May 28, 1999, as amended at 70 FR 51590, Aug. 31, 2005; 77 FR 66374, Nov. 5, 2012; 83 FR 27503, June 12, 2018]