FCU Launch Pad: Glossary
of Terms
The Farm Credit System has many terms unique to its
entities and operations. The following are some of the most commonly used:
1031 Property Tax Exchange -- A real estate transaction that
specifies “no gain or loss shall be recognized on the exchange of property held
for productive use in a trade or business or for investment if such property is
exchanged solely for property of like kind which is to be held either for
productive use in a trade or business or for investment." This allows
taxpayers to defer all of the capital gains taxes resulting from the sale of
investment property, when they use a qualified intermediary, follow the IRS
guidelines, and use the proceeds of the sale to buy more investment property
within 180 days of their sale.
Act -- The abbreviated term for the Farm Credit Act of 1971, as
amended.
Adjustable Rate Mortgages (ARMs) -- A loan product which allows the customer to
lock in a rate for a period of one (1), three (3), or five (5) years. At the end of this period, the rate re‑adjusts
at a pre‑determined spread over the treasury which was determined at the
time the loan was made. ARMs for 3 or 5
years are subject to a prepayment penalty, except housing loans.
Agency -- When capitalized, the term refers to the Farm Credit
Administration.
AgFirst, FCB -- AgFirst Farm Credit Bank, formally Farm
Credit Bank of Columbia – Headquartered in Columbia, SC, this Institution
provides loan funds and support services to associations serving Delaware, the
District of Columbia, Florida, Georgia, Maryland, North Carolina, Pennsylvania,
Puerto Rico, South Carolina, Virginia, and parts of Kentucky, Ohio, and
Tennessee. It also provides short- and
intermediate financing to First South association serving
AgriBank, FCB -- AgriBank, a Farm
Credit Bank based in
Agricultural Credit Association (ACA) -- An Agricultural Credit
Association is the successor entity resulting from the merger of a Federal Land
Bank Association or a Federal Land Credit Association and a Production Credit
Association, and has the combined authority of the two institutions. An ACA borrows funds from a Farm
Credit Bank or Agricultural Credit Bank to provide short-, intermediate-, and
long-term credit to farmers, ranchers, and producers or harvesters of aquatic
products. It also makes loans to these borrowers for certain processing and
marketing activities, to rural homeowners for housing, and to certain
farm-related businesses.
Agricultural Credit Bank (ACB) -- An ACB results
from the merger of a Bank for Cooperatives and a Farm Credit Bank and has
the combined authorities of those two institutions. An ACB is also authorized to finance U.S. Agricultural exports and provide international banking services for
farmer-owned cooperatives. CoBank is the only ACB in the Farm Credit System.
Annual Percentage Rate (APR) -- Cost of your credit, including applicable fees and
charges, on an annual rate.
Appraisal -- The valuation of collateral (real estate, chattels)
pledged to the ACA as security for a loan.
Assistance Board -- The Farm Credit
System Assistance Board was established by the Agricultural Credit Act of 1987
to administer financial assistance to stressed System institutions. After
completing its mission, the federal agency was shut down as scheduled on
Associations -- This term is often used to describe all
of the local entities which serve as the delivery points for credit to farmers,
ranchers, and other agricultural producers, as well as rural homeowners. They
include the four different types of associations, ACAs, FLBAs, FLCAs, and PCAs,
all of which are defined in this glossary.
Balance Sheet -- A statement which lists assets, liabilities and net
worth, or what you own and what you owe.
Balloon Loan -- A loan in which the amortization period exceeds the
term of the loan. Balloon loans are due
and payable in full at the end of the balloon period. This allows the lender to
reassess the loan and determine if it should be collected or continued.
Bank for Cooperatives (BC) -- A Bank for
Cooperatives is an institution which provides lending and other financial
services to farmer-owned cooperatives, rural utility (electric and telephone)
and rural sewer/water systems. It also is authorized to finance
Banks -- The FCBs, the ACB, and the BC.
Basis Point -- Basis points are units of measurement
used to describe interest rates. One hundred basis points are equal to one
percent. A basis
point is one one-hundredth of 1 percent. (8.5% equals 850 basis points.)
Bullet Payment –- Payment on a note in
which the
entire note’s principal (and possibly interest) comes due on a certain date
(like a balloon), but usually the intent is not to just renew or refinance it.
Cap -- The maximum percentage by which an interest rate can be
increased or decreased, usually in association with ARMs
CoBank -- CoBank was formed by the merger on
Consumer Price Index (CPI) -- The
Contract Agriculture –- A producer establishes an agreement usually with a
processor or marketing firm and under the agreement must produce agricultural
products or services with specific attributes or traits.
Fannie Mae -- Fannie Mae is a publicly owned, government-sponsored enterprise
chartered in 1938 to purchase mortgages from lenders and resell them to
investors. The agency, formerly known as
the Federal National Mortgage Corporation, packages mostly mortgages backed by
the Federal Housing Administration, but also sells some non-governmentally
backed mortgages. Shares of Fannie Mae
itself, known as Fannie Maes, are traded on the New York Stock Exchange. www.fanniemae.com
Farm Credit Act (the Act) -- The statute under
which the Farm Credit System operates. Its name in full is the Farm Credit Act
of 1971, as amended. The
Farm Credit Act recodified all previous acts governing the Farm Credit System. It was most recently
amended by the Farm Credit Reform Act of 1996 (P.L. 104-105).
Farm Credit Administration (FCA or Agency) -- The Farm Credit
Administration is the independent Federal government regulatory agency of the
privately owned Farm Credit System. It
is responsible for examining and regulating Farm Credit System institutions. FCA was created by Executive order
in 1933 and derives its powers and authorities from the Farm Credit Act of
1971, as amended. It is governed by a three-member board of
directors, nominated by the President and confirmed by the Senate. It is
headquartered in
Farm Credit Administration Board -- The
three-member Farm Credit Administration Board is the policy making body for the
Farm Credit Administration. Members are
appointed by the President with the advice and consent of the U.S. Senate to 6
year terms on the board. Members may not
be reappointed after serving a full term or more than 3 years of a previous
member’s term. The President designates
one of the members as the Chairman of the Board, who also serves as chief
executive officer.
Farm Credit Bank (FCB) -- Farm Credit Banks
were established pursuant to the merger of a Federal Land Bank and a Federal
Intermediate Credit Bank as required by the Agricultural Credit Act of 1987.
FCBs provide services and funds to local associations which, in turn, lend
those funds to farmers, ranchers, rural home buyers and some ag-related
businesses. The four FCBs are: AgriBank, FCB; AgFirst, FCB; Farm Credit Bank of
Farm Credit Bank of
Farm Credit Council (FCC) -- The Farm Credit
Council is the national trade association of the Farm Credit System. FCC
represents the interests of the System in
Farm Credit Council Services (FCCServices) -- Farm Credit Council Services is
headquartered in
Farm Credit Insurance
Fund (Insurance Fund) -- The Insurance
Fund represents the Farm Credit System Insurance Corporation’s equity, that is,
the difference between its total assets and its total liabilities, including
insurance obligations. The Farm Credit
Insurance Fund is maintained by FCSIC to protect investors in Systemwide debt
securities. System banks finance the fund by a 15 basis point assessment on
accruing loans and a 25 basis point assessment on non-accruing loans. These
assessments continue until the Fund reaches a secure base amount which is equal
to 2 percent of outstanding insured Systemwide debt securities or such other
percentage as FCSIC determines is actuarially sound.
Farm Credit Leasing Services Corporation (FCL)-- Farm Credit Leasing is a service
entity, owned by System banks to provide equipment leasing and related services
to eligible borrowers
including agricultural producers, cooperatives and rural utilities. www.fcleasing.com
Farm Credit Political Action Committee (PAC) -- Vehicle to collect money from Farm
Credit board members and employees to be used in shaping political policy. Funds are distributed to Members of Congress
by Bank and Association Board members.
Farm Credit System (FCS or System) -- The
Farm Credit System
Insurance Corporation (FCSIC) -- The Farm Credit System Insurance
Corporation was established by the Agricultural Credit Act of 1987 as an independent U.S.
Government-controlled corporation to insure the timely payment of principal
and interest on consolidated or Systemwide debt securities. It administers a
System-financed insurance fund. The FCA Board serves ex officio as the Board of Directors
for FCISC, however, the chairman of the FCA Board is not permitted to serve as
the chairman of the FCSIC Board of Directors. www.fcsic.gov.
Farm Service Agency (FSA) -- The U.S. Department of Agriculture’s Farm Service Agency.
Formally known as (FmHA) Farmers Home Administration, a government lending
institution that also makes agricultural loans.
Sometimes referred to as the lender of last resort. www.fsa.usda.gov
Federal Agricultural Mortgage Corporation (Farmer
Mac) -- Farmer
Mac was created by the Agricultural Credit Act of 1987 to provide guarantees
for the timely repayment of principal and interest on securities backed by
pools of agricultural real estate or rural home loans. Farmer Mac is America's secondary
market for first mortgage agricultural real estate loans. It was created by Congress to improve the
availability of mortgage credit to America's farmers, ranchers and rural
homeowners, businesses and communities.
Farmer Mac does this primarily by purchasing qualified loans from
lenders, thereby replenishing their source of funds to make new loans. While Farmer Mac is technically a System
institution, it is controlled by an independent 15-member board comprised of
five representatives of the System, five members from commercial banks and
insurance companies and five public members appointed by the President. The
System contributed about one half of the initial $21.6 million in capital
raised for the start-up of Farmer Mac. www.farmermac.com
Federal Farm Credit Banks Funding Corporation
(Funding Corp.) -- The System entity which manages the sale of
debt securities to finance the loans made by the institutions of the Farm
Credit System. Based in
Federal Intermediate Credit Bank (FICB) -- The Agricultural Credits Act of
1923 provided for the creation of 12 FICBs to discount Farmers' short- and
intermediate- term notes made by commercial banks, livestock loan companies,
and thrift institutions. The Farm Credit Act of 1933 authorized Farmers to
organize Production Credit Associations (PCAs), which could discount notes with
FICBs. As a result, PCAs became the primary entities for delivery of short- and
intermediate-term credit to farmers and ranchers. On
Federal Land Bank (FLB) -- Federal Land Banks
were established by Congress in 1917 to provide long-term mortgage credit to
farmers and ranchers, and later, to rural home buyers. They were required to
merge with FICBs by the Agricultural Credit Act of 1987.
Federal Land Bank Association (FLBA) -- A Federal Land
Bank Association serves as a lending agent for a Farm Credit Bank. They make
and service long-term mortgage loans to farmers, ranchers and rural home buyers.
A FLBA does not own loan assets, but makes loans only on behalf of the Farm
Credit Bank with which it is affiliated.
Financial Assistance Corporation (FAC) -- The Farm Credit
System Financial Assistance Corporation was established by the Agricultural
Credit Act of 1987 to sell bonds, the proceeds of which were used to provide
assistance to financially troubled System institutions. Of the $4 billion in
FAC Bonds authorized for use in assisting System institutions, less than a
third ($1.26 billion) were actually issued. The FAC's authority to issue bonds
expired on September 31, 1992. All assisted institutions redeemed their
assistance by
Fixed Rate -- The rate does not fluctuate during the term of the loan. The rate is tied to a spread above the
treasury index. Fixed rates are subject
to a prepayment penalty, except housing loans, assignment loans, or loans with
a term of four (4) years or less.
Freddie Mac –- Chartered by Congress in 1970,
Freddie Mac is one of
America's biggest buyers of home mortgages, providing a link between mortgage
lenders and investors. Freddie Mac doesn't make mortgage loans directly to
homebuyers. Rather, they buy mortgages from lenders including commercial banks,
mortgage banks, savings institutions and credit unions across the country to
help finance American homes. www.freddiemac.com
FSA Guarantee -- Farm Service Agency loan guarantee; the loan is guaranteed by FSA up
to 90% of loan loss, should a loss occur.
Government Sponsored
Gross Domestic Product (GDP) -- GDP is the market value of the goods and services
produced by labor and property in the
Interest -- Money paid for the use of
money. It begins accruing at the date of
loan disbursement.
Interim Interest -- The interest which accrues on a loan from the date of
disbursement until the beginning of the regular principal and interest cycle.
Intermediate Term Loan -- For the purchases of such items as chattels or real
estate and set up on a term of greater than one year but less than 10 years.
Joint and Several Liability -- The
Farm Credit Act of 1971, as amended, authorizes each Farm Credit Bank to join
with other banks of the Farm Credit System in issuing Systemwide notes, bonds,
debentures, and other obligations. Each
bank is primarily liable for the portion of any issue of Systemwide obligations
made on its behalf and is jointly and severally liable for the payment of any
additional sums as called upon by FCA in order to make payments of interest or
principal that any bank primarily liable is unable to make. “Jointly and severally” is a legal phrase
used in definitions of liability meaning that an obligation may be enforced
against all obligors jointly, or against any one of them separately.
LIBOR Rate (
Lifestyle Producer -– This is a producer or rural resident who utilizes their
agricultural assets to maximize their lifestyle through country living and
small part-time farming or ranching. Some will maximize tax benefits against
earnings and income while others attempt to reduce real estate taxes.
Line of Credit (LOC) -- A Line of Credit Loan is one in which not all funds are
disbursed at closing, creating a commitment or draw capability after closing,
for the balance of funds, in one or more draws.
Loan Fees --
Fees charged by the ACA in connection with the origination or servicing of
loans or appraisals of property.
Local markets –- A very fast growing trend in which the consumer prefers to purchase
products from producers within their local area or region. Some producers and processors are certified
organic while some market under the natural label.
Long Term Loan -- The term of a loan for 10 to 30 years.
Mortgage --
The legal documentation required to perfect the ACA's security interest in a
parcel of real estate pledged by a borrower as collateral.
Natural Agricultural
Product –- Consumer demand is
growing for this segment of the food and fiber system. Regulation is much less
restrictive for natural producers than organic producers and often includes
using no artificial hormones on the livestock and limited use of commercial
fertilizer and chemical applications.
No Caps -- Interest rate which can be
increased or decreased by any amount.
Nonaccrual -- Loan in which interest accrual has been suspended and will not be
reported as income. Loans are placed in
nonaccrual because the full collection of principal and interest is in doubt or
the account is in excess of 90 days delinquent with no documented plan of
collection.
Non-Revolving Loan -- These are generally referred to as Line of Credit “LOC” or Commitment Loans. The producer borrows a set amount of funds and once disbursed, these funds are not set back up in the loan to be drawn again as the loan pays down. A new note is signed each year by the borrower.
Note --
A legal agreement signed by the borrower consenting to the terms of the loan
and serves as the borrower's promise to repay.
Operating Loan -- Loan for crop and livestock production needs.
Organic Agriculture -– One of the fastest growing food
and fiber segments. To be an organic producer/processor/retailer one has to
comply with standards established by the USDA. For crops, it means they were grown without the use
of conventional pesticides or artificial fertilizers, and that they were
processed without ionizing radiation or food additives. For animals, it means they were reared
without the routine use of antibiotics and without the use of growth hormones.
Patronage Distribution -- A way of distributing the association's net income to
borrower/owners. A borrower’s refund is
based on the proportion of interest earned on his loan to the total interest
earned by the association.
Prime Rate -- This is the administered rate charged by the largest banks in the
Principal --
The amount of the debt less the interest. The initial amount of funds borrowed.
Private Mortgage Insurance (PMI) -- Insurance required on housing loans with a loan to
AV > 80%. – So in this case if the “Loan to Appraised Value” exceeds 80%,
Production Credit Association (PCA) -- A Production
Credit Association is the System entity that delivers short- and
intermediate-term loans to farmers and ranchers. A PCA borrows money from its
Farm Credit Bank to loan to farmers. PCAs also own their loan assets. A term used prior to
Revolving
Loan/Revolving Line of Credit (RLOC) -- A revolving loan is typically used by farmers for crop or
livestock operating needs. As the farmer
borrows funds and pays them back during the year, the funds repaid are set up
again so that they can again be drawn as called for in the producer's
contract. It is not necessary for the
producer to sign a new note in order to re‑borrow on this revolving line
during the operating year.
Service Entity -- A service entity
is an organization established by banks of the Farm Credit System to perform
functions and services for or on behalf of the organizing banks. Farm Credit
Leasing is a service entity, as is the Funding Corporation.
Short Term Loan -- The term of a loan for 1 month to
365 days.
Spread --
The spread is the difference between the stated interest rate and the index
(Prime, LIBOR, or Treasuries). For
example, a loan indexed to a prime rate of 6%, with a stated rate to the
customer of 10%, would have a 4% spread over prime.
System -- This term is often used to describe the
entire Farm Credit System.
System Banks -- This term refers generically to all the
banks of the Farm Credit System -- the 4 Farm Credit Banks and CoBank.
Systemwide Debt Securities -- Systemwide debt
instruments (securities) include: Federal Farm Credit Banks Consolidated
Systemwide Bonds; Federal Farm Credit Banks Consolidated Systemwide Medium-Term
Notes; Federal Farm Credit Banks Consolidated Systemwide Discount Notes; as
well as any other debt securities which may be issued by the Banks pursuant to Section 4.2(d) of the
Farm Credit Act. All are issued by the Funding Corporation to fund
System lending operations.
USDA –- Acronym for the United States Department
of Agriculture.
VA Loan –- Loan available to veterans as a
benefit through the Veterans Administration. Loans are guaranteed by the
Department of Veteran’s Affairs.