SIC 6111

This classification includes establishments of the federal government and federally sponsored credit agencies primarily engaged in guaranteeing, insuring, or making loans. Federally sponsored credit agencies are established under authority of federal legislation but are not regarded as part of the government. They are often owned by their members or borrowers.

NAICS Code(s)

522293 (International Trade Financing)

522294 (Secondary Market Financing)

522298 (All Other Non-Depository Credit Intermediation)

Industry Snapshot

The federal government created several organizations to provide services to communities where they otherwise would not be available or would not be affordable. It also created entities to encourage activities that are seen to be in the national interest. Most of these services are targeted at rural communities. Due to the sparse populations in these areas, as well as the instability of local income-producing enterprises, it is often not profitable for private firms to provide services such as credit and telephone services. In other cases, such as student loan financing, the government has an interest in promoting and encouraging the field's continued vibrancy.

Rural lending in particular is often affected by peripheral circumstances in the industry. The consolidation of banks in the later decades of the twentieth century (the number of commercial banks decreased by 45 percent between 1984 and 2002, from 14,496 to 7,966) tended to have a negative impact on rural lending, particularly when rural banks were merged with larger urban banks. According to the Journal of Agricultural Lending, "larger regional institutions may not have the same expertise or motivation to reinvest in local production processes." Also of concern was the 69 percent decrease in Farm Credit System associations from 377 in 1998 to 118 in 2001.

The organizations in this industry classification, while government sponsored, should not be strictly interpreted as government organizations. In fact, they are typically more private than public. The board and chief executive officer are typically appointed by the president of the United States, and its operations are nominally overseen by a cabinet-level secretary; however, the day-to-day operations of the organization are left to the staff. Furthermore, these agencies operate under the assumption that they are accountable for their continued financial well-being. The operational details of these organizations can vary greatly.

Organization and Structure

A wide variety of agencies are included under this classification. These agencies are described below.

Banks for Cooperatives. The first U.S. banks for cooperatives were established in Massachusetts. A law was passed May 14, 1877, authorizing the establishment of cooperative savings fund and loan associations. These associations later became known as cooperative banks. Cooperative banking takes several forms: building and loan associations; credit unions; federal land bank associations; labor banks; savings and loan associations; and savings banks.

Commodity Credit Corporation. The Commodity Credit Corporation (CCC), originally incorporated in Delaware in 1933, was operated and managed in close affiliation with the Reconstruction Finance Corporation. In 1939 the CCC became part of the Department of Agriculture, and in 1948 the CCC became an agency of the United States under a permanent federal charter.

The amended charter authorized the CCC to support prices of agricultural commodities through loans, purchases, payments, and other operations; support production and marketing of agricultural commodities; procure agricultural commodities for sale to other government agencies, foreign governments, and domestic, foreign, or international relief or rehabilitation agencies; dispose of surplus agricultural commodities; and establish policies to increase domestic consumption of agricultural commodities through the development of new markets, marketing facilities, and uses.

The CCC normally uses the customary conventions and mechanisms of trade and commerce to pursue its purchasing and selling operations and in storing, transporting, processing, and handling commodities, which often entails contracting the use of plants and facilities. The CCC has authority to acquire equipment, as well as to rent or lease office space. The CCC is not allowed to acquire real property or any interests in real property except to protect its financial interests and to provide adequate storage facilities. Cold storage facilities may only be built or bought when Congress has approved money to do so.

The operations and activities of the CCC are administered by the Agricultural Stabilization and Conservation Service (ASCS), an organization within the Department of Agriculture. The operations of the CCC are governed by the Food Security Act of 1985. This act extended CCC support of sugar beets and sugarcane and continued the soybean loan support program and quotas for peanuts. The Farm Act also authorized the CCC to offer commodity marketing loans to enhance U.S. competitiveness abroad, make rental payments to producers to move erodible land from production, intervene in dairy markets to support prices, and make payments to dairy producers to eliminate excess capacity. Finally, the act continued the previous "target price" system to augment commodity loans in supporting farm income and prices. "Target prices" form the basis on which agricultural subsidies are calculated. These subsidies, applied to wheat, feed grain, cotton, and rice producers who conform to specified standards and are eligible to receive subsidy payments are equal to the difference between the target price and the higher price of the market or the CCC loan value of the commodity.

To finance its activities, the CCC borrows from the U.S. Treasury, as well as from private lenders. The CCC is managed by a board of directors, which is chaired, ex officio, by the Secretary of Agriculture. The remainder of the board consists of six directors who are appointed by the president with the advice and consent of Congress. Not more than three of the directors may be of the same political party. The board is required to meet at the Secretary's convenience at least every 90 days.

Export-Import Bank. The Export-Import Bank (Eximbank) was incorporated in 1934 under the laws of the District of Columbia. The receipts and disbursements of the bank were removed from the U.S. budget by the Export Expansion Finance Act of 1971. The Export-Import Bank Act, as amended by legislation in 1968, provides for a board of directors consisting of five members. The members, appointed by the president with the advice and consent of Congress, consist of the president of the Eximbank, who serves as the board's chairman, the vice president, and three others. Of these, not more than three may be of the same party.

The primary objective of the bank is to aid in financing exports and imports as well as facilitating international trade and the exchange of commodities between the United States and foreign countries. The Export-Import Bank Act was designed to encourage the use of private capital for trade purposes but considers other factors in making loans not typically associated with corporate lending, including human rights considerations, adverse effects on U.S. industry, scarcity of materials, and domestic employment.

The Eximbank offers several programs. These include direct credits to borrowers outside the United States, export credit insurance, and export credit guarantees. The Eximbank also participates in the Foreign Credit Insurance Association (FCIA) with the insurance industry. The FCIA was established in 1961 to provide credit protection for U.S. exporters. The policies issued by the FCIA insure repayment in case of default by foreign buyers. These policies cover medium- and short-term transactions. The Eximbank also guarantees repayment to those commercial banks that finance these types of transactions as well as insuring service contracts and leases. Eximbank loans carry the lowest interest rate allowed by the Organization for Economic Cooperation and Development (OECD).

Farmers Home Administration. The Farmers Home Administration (FHA), a division of the Department of Agriculture, operates under Title V of the Housing Act of 1949; the Consolidated Farmers Home Administration Act of 1961; and Part III, Title A, of the Economic Opportunity Act of 1964. It was originally established under the Farmers Home Administration Act of 1946.

The Farmers Home Administration operates primarily in rural areas of the United States and takes applications for loans in a wide range of areas. The applications are reviewed and approved by a local committee, which is composed of three people, at least two of whom must be farmers. The money for the loans and grants made by the Farmers Home Administration comes from appropriations from Congress and private lenders who make loans, which are guaranteed by the agency. Most of the loans offered are of the latter type.

Loans made by the Farmers Home Administration include operating loans to small family farmers who cannot get the credit needed to make improvements and adjustments needed for successful farming, recreation, and nonfarm enterprises. Operating loan borrowers are expected to refinance their operating loans as soon as it is feasible to do so. Other loans available to farming families from the FHA are farm ownership, individual soil and water conservation, and recreation loans; these loans allow farmers to buy or extend their existing farms or ranches. Individual soil and water conservation loans help farmers in developing, conserving, and making proper use of their land and other resources, while recreation loans allow farmers to convert part of their existing land to income producing recreational land.

The FHA also is empowered to make additional loans for various purposes. These include loans to Indian tribes and tribal corporations for the acquisition of lands within the reservation or community; loans to farming associations to develop communal resources such as irrigation projects; rural housing loans to families of low and moderate income in areas with a population of not more than 20,000 where there is a lack of housing mortgage credit; emergency loans to farmers in areas affected by natural disasters to resume farming operations; watershed protection and flood prevention loans to local communities to finance projects that protect and develop land and water resources in small watersheds; loans for natural resource conservation and development in specified areas; emergency livestock guarantees to lenders making loans to ranchers to continue operations during difficult periods; and rural industrialization and development loans to local community organizations for the purpose of improving the economic and environmental climate in the community.

Federal Home Loan Mortgage Corporation. The Federal Home Loan Mortgage Corporation (FHLMC), or Freddie Mac, was established in 1970 under Title II of the Emergency Home Finance Act of 1970. This agency was established to strengthen the secondary markets in residential mortgages insured by the FHA or guaranteed by the Veterans' Administration. The agency also helps develop secondary markets for non-federally insured or guaranteed residential mortgages. The agency buys mortgages from members of the Federal Home Loan Bank System and other financial institutions that are insured by agencies of the U.S. government. The agency then repackages and sells these loans.

The capital stock of the FHLMC consists of one class nonvoting shares of common stock, which are only issuable to the 12 Federal Home Loan Banks. The board is composed of three members of the Federal Home Loan Bank Board, whose chairman is also the chairman of FHLMC.

The FHLMC was created to encourage the growth of secondary markets for residential mortgages in order to increase the effective supply of these mortgages by making these investments more attractive. The agency developed a standardized home loan application and single-family appraisal report, as well as uniform documents for mortgages. The agency introduced an automated underwriting system in 1972 and the guaranteed mortgage certificate (GMC) in 1975. Although the Federal Home Loan Mortgage Corporation is an organization created under the auspices of the U.S. government, it is not considered a federal agency. It is taxable under relevant federal laws.

Federal Intermediate Credit Bank. Title II of the Federal Farm Loan Act of 1923 established the 12 Federal Intermediate Credit Banks (FICBs). These banks were created to discount or buy short- and medium-term notes from commercial banks and other financial institutions holding notes of farmers and ranchers. The capital stock of the FICBs are owned by production credit associations, local credit cooperatives organized under the Farm Credit Act of 1933.

The FICBs work closely with the various production credit associations (PCAs). PCAs are primary lenders that provide rural communities with short- and medium-term credit for operating, capital, and other needs. These loans vary in maturity length from a few months to seven years. The PCAs often work in conjunction with commercial banks to provide these services to rural customers. As primary lenders, the PCAs sustain losses to the extent of available resources. The PCAs adopted mutual loss sharing, participating loan plans, or both to spread the risk. The borrowers of the individual PCAs elect the board of directors.

The FICBs loan money to farmers, ranchers, producers and harvesters of aquatic products, operators providing farm services, and rural residents. They make loans to discount commercial paper for local financial institutions. The FICBs also help the production credit associations make sound credit available in rural areas. FICBs issue stock and sell participation certificates to raise capital. While the majority of their loans are made for production purposes and mature within one year, farm and rural home loans may have extended terms of up to 10 years and loans to producers and harvesters of aquatic products may be made for up to 15 years.

Federal Land Banks. The Federal Land Banks complement the mission of the Federal Intermediate Credit Banks by offering long-term farm mortgage loans. The Federal Land Banks were created by the Federal Farm Loan Act of 1916. This act also created the Federal Land Bank associations—local farmer borrowing associations through which the Federal Land Banks make loans. The stock of the Federal Land Banks is owned by the Federal Land Bank associations whose stock is owned by farmers and ranchers who are members of the association as well as borrowers.

Federal Land Banks mortgage loans may not exceed 85 percent of the appraised value of the property (97 percent if the loan is guaranteed by a government agency) on terms of 5 to 40 years. The majority of the loans have a 20-year maturity. Each borrower is required to buy stock in the local association equal to 5 percent of his loan, and the association is required to buy an equal amount of stock in the district's Federal Land Bank.

Federal National Mortgage Association. The Federal National Mortgage Association (FNMA), or Fannie Mae, was created by the Reconstruction Finance Corporation in 1938. The FNMA became a government-sponsored private corporation through Title VIII of the Housing and Urban Development Act of 1968. It is responsible for secondary mortgage operations for home mortgages.

As a government-sponsored organization, the FNMA is accorded certain advantages not normally accorded to business corporations. The Secretary of the Treasury may buy FNMA obligations at any time, although the corporation's management tries to conduct its business so as to avoid the need to use this option. Another advantage the FNMA enjoys is that its common stock and other securities are exempt from Securities and Exchange Commission (SEC) Laws and regulations to the same extent as U.S. government securities. The FNMA, however, does voluntarily disclose the same information as required by the SEC. Finally, the FNMA is exempt from state and local taxes, except real property taxes.

The corporation's obligations are issuable through the facilities of the Federal Reserve banks. Since the obligations of the FNMA are classified as federal agency securities, they are given favorable consideration by the financial markets. Technically, however, the FNMA's issues are not federal government obligations, nor are they federally guaranteed by the U.S. government. While FNMA is not an agency of the U.S. government, it is subject to federal supervision and oversight from the offices of Housing and Urban Development and Treasury.

Government National Mortgage Association. The Government National Mortgage Association (GNMA), or Ginny Mae, was created in its current form in 1968 after being originally chartered under Title III of the National Housing Act of 1938. It is a corporate organization of the U.S. government with no capital stock or board of directors. The GNMA operates under the supervision of the Secretary of the Department of Housing and Urban Development.

The GNMA is involved in several programs related to residential mortgage finance. These projects include:1) special assistance in the financing of federally underwritten mortgages (typically the GNMA buys the mortgages from private lenders at below market prices and sells them to private investors at market prices); 2) management and liquidation of the portfolio of existing mortgages; 3) management of the Government Mortgage Liquidation Trust, Small Business Obligations Trust, Federal Assets Liquidation Trust, and Federal Assets Financing Trust; 4) guaranty of the timely payment of principal and interest on trust certificates and other securities issues by the Federal National Mortgage Corporation, as well as its own mortgage backed securities and those of other approved organizations.

National Consumer Cooperative Bank. The National Consumer Cooperative Bank was established in 1978 by the National Consumer Cooperative Bank Act. The mission of the bank is to encourage new and existing consumers and self-help cooperatives in the areas of health care, housing, consumer goods, and other public interests. The bank helps improve the quality of available goods and services to consumers. To accomplish this goal the bank makes loans to credit-worthy cooperatives at market interest rates. Institutions that do not qualify for credit may receive special financial and technical help from the bank's Office of Self-Help Development and Technical Assistance.

The bank is governed by a board of directors that consists of 15 members who are appointed by the president. Eight of these members are appointed from the ranks of the executive department heads, and the remaining seven are experienced members of the public. The bank is an independent financial institution raising capital through the sale of its bonds, debentures, notes, and other instruments. The U.S. government is not responsible for any obligation of the bank.

Rural Electrification Administration. The Rural Electrification Administration (REA) was created in 1935 as an emergency relief program. It was later authorized to continue as a permanent program by the Rural Electrification Act of 1936. The REA was established as a lending agency with responsibility for developing a program for rural electrification. It later expanded its involvement in modernizing rural areas by extending telephone service to rural areas. In 1973 the REA began guaranteeing loans made by private lenders. Since its founding, about 1,000 electric and 900 telephone utility systems have received loans from the REA.

The REA administrator, its chief officer, is appointed by the president subject to U.S. Senate confirmation. The REA operates under the supervision of the Under Secretary of Agriculture for Small Community and Rural Development.

REA loans are made from a revolving fund in the U.S. Treasury, which is replenished through collections on outstanding and future loans, borrowings from the Treasury, and sale of financial instruments. The REA also guarantees loans for large-scale projects. Guarantees are considered for projects if REA loans could have been made to the project. The loan itself may be obtained from any organization qualified to make, hold, and service the loan. All of the policies and procedures of the REA are applicable to the loan.

Student Loan Marketing Association. The Student Loan Marketing Association (SLMA), or Sallie Mae, is a private corporation created in 1972 by amendments to the Higher Education Act of 1965. The mission of the SLMA is to expand the money available for student loans by providing liquidity to educational lenders involved in the guaranteed loan program. As of 2001, Sallie Mae managed $36.9 billion in guaranteed student loans and had $46.6 billion in total assets.

The SLMA offers three programs under its student loan program: a loan purchase program; a warehousing advance program; and commitment programs. To provide liquidity for institutions involved in educational loan programs, the SLMA offers a program of loan consolidation, purchase of auxiliary loans, and a program of loan participation. The SLMA is also engaged in a health education assistance program for students. Loans originated under the SLMA's loan programs are either insured or reinsured by the federal government.

After enjoying steady growth during the mid-1990s, Sallie Mae saw its sales plummet nearly 50 percent to $2.02 billion in 2002. However, its net income rose 106.2 percent between 2001 and 2002 to a total of $792 million. Sallie Mae employs approximately 6,011 people in its corporate office in Washington, D.C., and in its 10 sales and loan servicing centers. No longer able to rely on government protection from loan default costs, Sallie Mae was as pf 2002 in the process of being privatized, a process it planned to complete in 2006.

Background and Development

While each of these separate entities included under this industry classification has a distinct history and development, certain themes are common to all. Many of the programs were created or are the result of legislation passed in the wake of the Great Depression. The need for these services was most apparent in rural regions of the country, which were some of the hardest hit by the economic downturn of the 1930s. This legislation is collectively known as "New Deal," legislation passed during the Franklin D. Roosevelt administration.

The recession of the late 1980s and early 1990s soured the public's support of government expenditures in all areas, including federally sponsored organizations. This diminished public support led to more intense government scrutiny of proposed spending programs. However, since the organizations in this industry classification are largely self-supporting, they escaped some of the difficulties faced by other purely government programs. The need for the services provided by these organizations continued into the 1990s. As of the early 2000s, many rural communities remained in desperate financial conditions. The recession also caused a general tightening of credit, making many rural borrowers ineligible for credit through other credit agencies.

Current Conditions

While rural community issues are not limited to subjects of agriculture, certain farming trends may affect this industry. Despite industry concerns that banking consolidation might make securing rural loans more difficult, according to the United States Department of Agriculture (USDA), farm debt reached a record $202 billion in 2002, exceeding its previous record of $193.8 billion in 1984. The USDA expects farm debt to increase roughly 4 percent in 2003 to reach $210 billion. At the same time, farm net worth is predicted to increase due to an increase in asset value greater than the growth of debt. Since the early 1990s, rising farm asset values have helped to offset increasing debt levels. As stated in a USDA report, because farm real estate values have risen faster than farm mortgage debt, "the degree of farmland leverage has declined slightly. This has provided farm investors with an added equity cushion to lessen the impact of any short-term declines in income or asset values."

Regarding home mortgage trends in the industry, both Freddie Mac and Fannie Mae announced increased limits for single-family mortgages for 2000. The new limit of $252,700 per single-family mortgage represented an increase of 5.3 percent over the 1999 ceiling for single-family mortgages of $240,000. Also, the declining home interest rates of the early 2000s, which caused a spike in new home mortgage applications, boosted both profits and sales for Freddie Mac and Fannie Mae.

Industry Leaders

The public companies Freddie Mac and Fannie Mae are industry leaders in the sense that they do a relatively larger portion of business in the industry than other lender brokers. One of every six mortgages in the United States is indirectly financed by Freddie Mac. Private competitors in the industry have objected to the unique business hybrid existence of a company like Fannie Mae, complaining that Fannie Mae has a competitive advantage in the lending market. Fannie Mae had sales of $50.8 billion in 2001, reflecting a one-year sales growth of 15.2 percent. Fannie Mae's net income in 2001 was $5.9 million, an increase of 32.5 percent. Freddie Mac saw its sales grow 1.7 percent to $36.7 billion during 2002. The company had net income in 2002 of $5.7 million, a 39 percent increase from the previous year.


Organizations covered in this industry classification range in workforce size from 11,000 to 225,000 employees. These employees represent all of the disciplines found in the private lending sector, including secretaries, financial analysts, managers, and clerks. These organizations are affiliated with the government to some degree and thus have many employees in the Greater Washington, D.C., area. Similarly, many of the organizations serve rural constituencies, so many employees involved with those organizations live in communities of fewer than 50,000.

Further Reading

Ellinger, Paul N. "Banking Consolidation and Its Impact on Rural Banking." Journal of Agricultural Lending, Fall 2002. Available from .

"Hoover's Company Capsules: Fannie Mae." Hoover's Online, 1999. Available from .

"Hoover's Company Capsules: Freddie Mac." Hoover's Online, 1999. Available from .

Looker, Dan. "Farms and Ranches Should Form Long Term Relationships with Well Managed Banks and Farm Credit Services Instead of Seeking the Services of Captive Finance Companies." Successful Farming, March 1997.

"NAR Applauds Freddie Mac and Fannie Mae Announcement." PRNewswire, 30 November 1999. Available from .

U. S. Department of Agriculture. Economic Research Service. "Farm Debt Stabilization Anticipated in 1999; with Farm Debt Expected to be $172.7 Billion," 23 September 1999. Available from .

——. "Farm Income and Costs: Assets, Debt, and Wealth," 5 February 2003. Available from .

——. "Lower Interest Rates to Benefit Farmers," 23 September 1999. Available from .

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