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Loan Loss Severity of Agricultural Mortgages

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  • Allen M. Featherstone
  • Christian R. Boessen

Abstract

The establishment of the Federal Agricultural Mortgage Corporation (Farmer Mac) has increased the need for detailed performance data on yield, prepayment, and default for agricultural real estate mortgages. This study derives and applies a model for estimating the loan loss severity and default premium required for underwriting agricultural real estate mortgages. The estimated loan loss severity on a nationwide pool of defaulted mortgages is 4.7 percent. On all but 6 percent of 457 defaulted mortgages, the original principal balance was recovered. Combining loan loss severity results with the frequency of default suggests that for the 20-year period from 1966 to 1985, the yield loss from defaulted agricultural mortgages was 29 basis points. For the 10-year period from 1976 to 1985, the yield impact was 46 basis points.

Suggested Citation

  • Allen M. Featherstone & Christian R. Boessen, 1994. "Loan Loss Severity of Agricultural Mortgages," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 16(2), pages 249-258.
    • Handle: RePEc:oup:revage:v:16:y:1994:i:2:p:249-258.
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    File URL: http://hdl.handle.net/10.2307/1349467
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    Cited by:

    1. Amelie Jouault & Allen M. Featherstone, 2011. "Determining the Probability of Default of Agricultural Loans in a French Bank," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 1(1), pages 1-1.
    2. Allen M. Featherstone & Laura M. Roessler & Peter J. Barry, 2006. "Determining the Probability of Default and Risk-Rating Class for Loans in the Seventh Farm Credit District Portfolio," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 28(1), pages 4-23.

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