FAIR VALUE DISCLOSURES

Fair Value Measurement

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price).

In determining fair value, Farmer Mac uses various valuation approaches, including market and income based approaches. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. When available, the fair value of Farmer Mac's financial instruments is based on quoted market prices, valuation techniques that use observable market-based inputs, or unobservable inputs that are corroborated by market data. Pricing information obtained from third parties is internally validated for reasonableness prior to use in the consolidated financial statements. Farmer Mac's accounting polices for fair value measurement and a description of the fair value techniques used for instruments measured at fair value is discussed in

Note 2(p) and Note 13 to the consolidated financial statements included in Farmer Mac's Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 18, 2013.

Fair value measurements related to financial instruments that are reported at fair value in the consolidated financial statements each period are referred to as recurring fair value measurements. Fair value measurements related to financial instruments that are not reported at fair value each period but are subject to fair value adjustments in certain circumstances are referred to as nonrecurring fair value measurements.

During first quarter 2013, Farmer Mac observed an increasing trend in the use of the overnight index swap ("OIS") curve by other market participants to value certain collateralized interest rate swap agreements. As a result, Farmer Mac concluded that the OIS curve was a more appropriate curve to use to discount the cash flows on certain collateralized interest rate swaps effective March 31, 2013. The impact of this change was not significant.

Fair Value Classification and Transfers

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. The hierarchy gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The following three levels are used to classify fair value measurements:


Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.


Level 2	Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.


Level 3	Prices or valuations that require unobservable inputs that are significant to the fair value measurement.

As of June 30, 2013, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $6.8 billion whose fair values were estimated by management in the absence of readily determinable fair values (i.e., Level 3). These financial instruments measured as Level 3 represented 52 percent of total assets and 73 percent of financial instruments measured at fair value as of June 30, 2013. As of December 31, 2012, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $7.1 billion whose fair values were estimated by management in the absence of readily determinable fair values. These financial instruments measured as Level 3 represented 56 percent of total assets and 73 percent of financial instruments measured at fair value as of December 31, 2012.

Net transfers in and/or out of the different levels within the fair value hierarchy are based on the fair values of the assets and liabilities as of the beginning of the reporting period. There were no transfers within the fair value hierarchy for fair value measurements of Farmer Mac's investment securities, Farmer Mac Guaranteed Securities, and USDA Guaranteed Securities, and financial derivatives during the first six months of 2013 and 2012.

The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring and nonrecurring basis as of June 30, 2013 and December 31, 2012, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value:

Table 8.1



Assets and Liabilities Measured at Fair Value as of June 30, 2013
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	—	$	—	$	65,088	$	65,088
Floating rate asset-backed securities	—		158,292		—		158,292
Floating rate corporate debt securities	—		104,656		—		104,656
Fixed rate corporate debt securities	—		65,065		—		65,065
Floating rate Government/GSE guaranteed mortgage-backed securities	—		663,885		222		664,107
Fixed rate GSE guaranteed mortgage-backed securities	—		5,833		—		5,833
Floating rate GSE subordinated debt	—		63,321		—		63,321
Fixed rate GSE preferred stock	—		86,889		—		86,889
Fixed rate taxable municipal bonds	—		18,721		—		18,721
Floating rate senior agency debt	—		50,032		—		50,032
Fixed rate senior agency debt	—		119,467		—		119,467
Fixed rate U.S. Treasuries	1,054,381		—		—		1,054,381
Total available-for-sale	1,054,381		1,336,161		65,310		2,455,852
Trading:
Floating rate asset-backed securities	—		—		1,064		1,064
Total trading	—		—		1,064		1,064
Total Investment Securities	1,054,381		1,336,161		66,374		2,456,916
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farm & Ranch	—		—		3,498,474		3,498,474
USDA Guarantees	—		—		25,794		25,794
Rural Utilities	—		—		1,534,585		1,534,585
Total Farmer Mac Guaranteed Securities	—		—		5,058,853		5,058,853
USDA Guaranteed Securities:
Available-for-sale	—		—		1,543,764		1,543,764
Trading	—		—		73,592		73,592
Total USDA Guaranteed Securities	—		—		1,617,356		1,617,356
Financial derivatives	—		23,164		—		23,164
Total Assets at fair value	$	1,054,381	$	1,359,325	$	6,742,583	$	9,156,289
Liabilities:
Financial derivatives	$	30	$	98,643	$	390	$	99,063
Total Liabilities at fair value	$	30	$	98,643	$	390	$	99,063
Nonrecurring:
Assets:
Loans held for investment	$	—	$	—	$	5,891	$	5,891
REO	—		—		2,088		2,088
Total Nonrecurring Assets at fair value	$	—	$	—	$	7,979	$	7,979



Assets and Liabilities Measured at Fair Value as of December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	—	$	—	$	63,159	$	63,159
Floating rate asset-backed securities	—		151,044		—		151,044
Fixed rate asset-backed securities	—		6,501		—		6,501
Floating rate corporate debt securities	—		76,763		—		76,763
Fixed rate corporate debt	—		52,416		—		52,416
Floating rate Government/GSE guaranteed mortgage-backed securities	—		712,859		—		712,859
Fixed rate GSE guaranteed mortgage-backed securities	—		2,065		—		2,065
Floating rate GSE subordinated debt	—		57,431		—		57,431
Fixed rate commercial paper	—		—		—		—
Fixed rate GSE preferred stock	—		87,086		—		87,086
Floating rate senior agency debt	—		50,055		—		50,055
Fixed rate senior agency debt	—		73,114		—		73,114
Fixed rate U.S. Treasuries	1,165,889		—		—		1,165,889
Total available-for-sale	1,165,889		1,269,334		63,159		2,498,382
Trading:
Floating rate asset-backed securities	—		—		1,247		1,247
Total trading	—		—		1,247		1,247
Total Investment Securities	1,165,889		1,269,334		64,406		2,499,629
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farm & Ranch	—		—		3,426,489		3,426,489
USDA Guarantees	—		—		26,681		26,681
Rural Utilities	—		—		1,313,088		1,313,088
Total Farmer Mac Guaranteed Securities	—		—		4,766,258		4,766,258
USDA Guaranteed Securities:
Available-for-sale	—		—		1,486,595		1,486,595
Trading	—		—		104,188		104,188
Total USDA Guaranteed Securities	—		—		1,590,783		1,590,783
Financial derivatives	—		31,173		—		31,173
Total Assets at fair value	$	1,165,889	$	1,300,507	$	6,421,447	$	8,887,843
Liabilities:
Financial derivatives	$	12	$	149,979	$	691	$	150,682
Total Liabilities at fair value	$	12	$	149,979	$	691	$	150,682
Nonrecurring:
Assets:
Loans held for sale	$	—	$	—	$	657,154	$	657,154
Loans held for investment	—		—		8,130		8,130
REO	—		—		1,704		1,704
Total Nonrecurring Assets at fair value	$	—	$	—	$	666,988	$	666,988

The following tables present additional information about assets and liabilities measured at fair value on a recurring basis for which Farmer Mac has used significant unobservable inputs to determine fair value. Net transfers in and/or out of Level 3 are based on the fair values of the assets and liabilities as of the beginning of the reporting period.

Table 8.2



Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2013
	Beginning Balance			Purchases		Sales		Settlements			Realized and Unrealized Gains/ (Losses) included in Income			Unrealized Gains/(Losses) included in Other Comprehen-sive Income			Ending Balance
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	65,213		$	—	$	—	$	—		$	—		$	(125	)	$	65,088
Floating rate Government/GSE guaranteed mortgage-backed securities	233			—		—		(9		)	—			(2		)	222
Total available-for-sale	65,446			—		—		(9		)	—			(127		)	65,310
Trading:
Floating rate asset-backed securities (1)	1,129			—		—		(186		)	121			—			1,064
Total trading	1,129			—		—		(186		)	121			—			1,064
Total Investment Securities	66,575			—		—		(195		)	121			(127		)	66,374
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farm & Ranch	3,528,520			200,000		—		(201,208		)	(14,730		)	(14,108		)	3,498,474
USDA Guarantees	27,198			—		—		(515		)	—			(889		)	25,794
Rural Utilities	1,544,362			—		—		(5,311		)	—			(4,466		)	1,534,585
Total Farmer Mac Guaranteed Securities	5,100,080			200,000		—		(207,034		)	(14,730		)	(19,463		)	5,058,853
USDA Guaranteed Securities:
Available-for-sale	1,569,160			110,897		—		(76,364		)	—			(59,929		)	1,543,764
Trading (2)	87,271			—		—		(13,231		)	(448		)	—			73,592
Total USDA Guaranteed Securities	1,656,431			110,897		—		(89,595		)	(448		)	(59,929		)	1,617,356
Total Assets at fair value	$	6,823,086		$	310,897	$	—	$	(296,824	)	$	(15,057	)	$	(79,519	)	$	6,742,583
Liabilities:
Financial derivatives (3)	$	(532	)	$	—	$	—	$	—		$	142		$	—		$	(390	)
Total Liabilities at fair value	$	(532	)	$	—	$	—	$	—		$	142		$	—		$	(390	)


(1)	Unrealized gains are attributable to assets still held as of June 30, 2013 and are recorded in "Losses on trading assets."


(2)	Includes unrealized losses of $0.3 million attributable to assets still held as of June 30, 2013 that are recorded in "Losses on trading assets."


(3)	Unrealized gains are attributable to liabilities still held as of June 30, 2013 and are recorded in "Gains/(losses) on financial derivatives and hedging activities."



Level 3 Assets and Liabilities Measured at Fair Value for the Three Months Ended June 30, 2012
	Beginning Balance			Purchases		Sales			Settlements			Realized and Unrealized Gains/ (Losses) included in Income			Unrealized Gains/(Losses) included in Other Comprehen-sive Income			Ending Balance
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	58,868		$	—	$	—		$	—		$	—		$	839		$	59,707
Total available-for-sale	58,868			—		—			—			—			839			59,707
Trading:
Floating rate asset-backed securities (1)	1,646			—		—			(239		)	23			—			1,430
Total trading	1,646			—		—			(239		)	23			—			1,430
Total Investment Securities	60,514			—		—			(239		)	23			839			61,137
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farm & Ranch	3,008,223			200,000		—			(1,007		)	—			16,116			3,223,332
USDA Guarantees	36,129			5,327		(5,327		)	(5,787		)	—			(443		)	29,899
Rural Utilities	1,345,509			—		—			(150,000		)	—			(4,273		)	1,191,236
Total Farmer Mac Guaranteed Securities	4,389,861			205,327		(5,327		)	(156,794		)	—			11,400			4,444,467
USDA Guaranteed Securities:
Available-for-sale	1,328,702			160,286		—			(69,775		)	—			(575		)	1,418,638
Trading (2)	184,397			—		—			(34,463		)	(3,109		)	—			146,825
Total USDA Guaranteed Securities	1,513,099			160,286		—			(104,238		)	(3,109		)	(575		)	1,565,463
Total Assets at fair value	$	5,963,474		$	365,613	$	(5,327	)	$	(261,271	)	$	(3,086	)	$	11,664		$	6,071,067
Liabilities:
Financial derivatives (3)	$	(1,225	)	$	—	$	—		$	—		$	258		$	—		$	(967	)
Total Liabilities at fair value	$	(1,225	)	$	—	$	—		$	—		$	258		$	—		$	(967	)


(1)	Unrealized gains are attributable to assets still held as of June 30, 2012 and are recorded in "Losses on trading assets."


(2)	Includes unrealized losses of $2.4 million attributable to assets still held as of June 30, 2012 that are recorded in "Losses on trading assets."


(3)	Unrealized gains are attributable to liabilities still held as of June 30, 2012 and are recorded in "Gains/(losses) on financial derivatives and hedging activities."



Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2013
	Beginning Balance			Purchases		Sales		Settlements			Realized and Unrealized Gains/ (Losses) included in Income			Unrealized Gains/(Losses) included in Other Comprehen-sive Income			Ending Balance
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	63,159		$	—	$	—	$	—		$	—		$	1,929		$	65,088
Floating rate Government/GSE guaranteed mortgage-backed securities	—			233		—		(9		)	—			(2		)	222
Total available-for-sale	63,159			233		—		(9		)	—			1,927			65,310
Trading:
Floating rate asset-backed securities (1)	1,247			—		—		(500		)	317			—			1,064
Total trading	1,247			—		—		(500		)	317			—			1,064
Total Investment Securities	64,406			233		—		(509		)	317			1,927			66,374
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farm & Ranch	3,426,489			300,000		—		(201,217		)	(17,868		)	(8,930		)	3,498,474
USDA Guarantees	26,681			—		—		(898		)	—			11			25,794
Rural Utilities	1,313,088			325,000		—		(83,235		)	—			(20,268		)	1,534,585
Total Farmer Mac Guaranteed Securities	4,766,258			625,000		—		(285,350		)	(17,868		)	(29,187		)	5,058,853
USDA Guaranteed Securities:
Available-for-sale	1,486,595			233,084		—		(145,566		)	—			(30,349		)	1,543,764
Trading (2)	104,188			—		—		(30,162		)	(434		)	—			73,592
Total USDA Guaranteed Securities	1,590,783			233,084		—		(175,728		)	(434		)	(30,349		)	1,617,356
Total Assets at fair value	$	6,421,447		$	858,317	$	—	$	(461,587	)	$	(17,985	)	$	(57,609	)	$	6,742,583
Liabilities:
Financial derivatives (3)	$	(691	)	$	—	$	—	$	—		$	301		$	—		$	(390	)
Total Liabilities at fair value	$	(691	)	$	—	$	—	$	—		$	301		$	—		$	(390	)


(1)	Unrealized gains are attributable to assets still held as of June 30, 2013 and are recorded in "Losses on trading assets."


(2)	Includes unrealized losses of $0.1 million attributable to assets still held as of June 30, 2013 that are recorded in "Losses on trading assets."


(3)	Unrealized gains are attributable to liabilities still held as of June 30, 2013 and are recorded in "Gains/(losses) on financial derivatives and hedging activities."



Level 3 Assets and Liabilities Measured at Fair Value for the Six Months Ended June 30, 2012
	Beginning Balance			Purchases		Sales			Settlements			Realized and Unrealized Gains/ (Losses) included in Income			Unrealized Gains/(Losses) included in Other Comprehen-sive Income			Ending Balance
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	60,213		$	—	$	—		$	—		$	—		$	(506	)	$	59,707
Total available-for-sale	60,213			—		—			—			—			(506		)	59,707
Trading:
Floating rate asset-backed securities (1)	1,796			—		—			(527		)	161			—			1,430
Total trading	1,796			—		—			(527		)	161			—			1,430
Total Investment Securities	62,009			—		—			(527		)	161			(506		)	61,137
Farmer Mac Guaranteed Securities:
Available-for-sale:
Farm & Ranch	2,807,627			400,000		—			(1,015		)	—			16,720			3,223,332
USDA Guarantees	35,599			5,327		(5,327		)	(6,015		)	—			315			29,899
Rural Utilities	1,446,046			—		—			(245,701		)	—			(9,109		)	1,191,236
Total Farmer Mac Guaranteed Securities	4,289,272			405,327		(5,327		)	(252,731		)	—			7,926			4,444,467
USDA Guaranteed Securities:
Available-for-sale	1,279,546			262,011		—			(123,793		)	—			874			1,418,638
Trading (2)	212,359			—		—			(63,386		)	(2,148		)	—			146,825
Total USDA Guaranteed Securities	1,491,905			262,011		—			(187,179		)	(2,148		)	874			1,565,463
Total Assets at fair value	$	5,843,186		$	667,338	$	(5,327	)	$	(440,437	)	$	(1,987	)	$	8,294		$	6,071,067
Liabilities:
Financial derivatives (3)	$	(1,335	)	$	—	$	—		$	—		$	368		$	—		$	(967	)
Total Liabilities at fair value	$	(1,335	)	$	—	$	—		$	—		$	368		$	—		$	(967	)


(1)	Unrealized gains are attributable to assets still held as of June 30, 2012 and are recorded in "Losses on trading assets."


(2)	Includes unrealized losses of $1.6 million attributable to assets still held as of June 30, 2012 that are recorded in "Losses on trading assets."


(3)	Unrealized gains are attributable to liabilities still held as of June 30, 2012 and are recorded in "Gains/(losses) on financial derivatives and hedging activities."

The following tables present additional information about the significant unobservable inputs, such as discount rates and constant prepayment rates ("CPR"), used in the fair value measurements categorized in Level 3 of the fair value hierarchy as of June 30, 2013 and December 31, 2012:

Table 8.3



	June 30, 2013
Financial Instruments	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted-Average)
	(in thousands)
Assets:
Investment securities:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	65,088	Indicative bids	Range of broker quotes	82.0% - 92.0% (87.8%)
Floating rate asset-backed securities	$	1,064	Discounted cash flow	Discount rate	11.8% - 19.9% (16.0%)
				CPR	10%
Floating rate Government/GSE guaranteed mortgage-backed securities	$	222	Discounted cash flow	Discount rate	1.7% - 1.7% (1.7%)
				CPR	7%
Farmer Mac Guaranteed Securities:
Farm & Ranch	$	3,498,474	Discounted cash flow	Discount rate	0.9% - 3.6% (1.7%)
USDA Guarantees	$	25,794	Discounted cash flow	Discount rate	0.9% - 3.3% (2.1%)
				CPR	8% - 15% (13%)
Rural Utilities	$	1,534,585	Discounted cash flow	Discount rate	0.8% - 3.2% (1.6%)
USDA Guaranteed Securities	$	1,617,356	Discounted cash flow	Discount rate	1.2% - 5.3% (3.3%)
				CPR	0% - 25% (7%)
Liabilities:
Financial Derivatives:
Basis swaps	$	390	Discounted cash flow	Discount rate	0.8% - 2.7% (1.5%)
				CPR	12% - 14% (13%)



	December 31, 2012
Financial Instruments	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted-Average)
	(in thousands)
Assets:
Investment securities:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	63,159	Indicative bids	Range of broker quotes	82.0% - 90.0% (85.0%)
Floating rate asset-backed securities	$	1,247	Discounted cash flow	Discount rate	12.4% - 19.7% (16.2%)
				CPR	10%
Farmer Mac Guaranteed Securities:
Farm & Ranch	$	3,426,489	Discounted cash flow	Discount rate	1.1% - 3.4% (1.6%)
USDA Guarantees	$	26,681	Discounted cash flow	Discount rate	1.0% - 3.4% (2.1%)
				CPR	8% - 17% (14%)
Rural Utilities	$	1,313,088	Discounted cash flow	Discount rate	0.8% - 2.9% (1.6%)
USDA Guaranteed Securities	$	1,590,783	Discounted cash flow	Discount rate	1.4% - 5.3% (3.4%)
				CPR	0% - 26% (10%)
Liabilities:
Financial Derivatives:
Basis swaps	$	691	Discounted cash flow	Discount rate	1.0% - 3.0% (1.7%)
				CPR	11% - 19% (16%)

The significant unobservable inputs used in the fair value measurements of Farmer Mac Guaranteed Securities and USDA Guaranteed Securities are prepayment rates and discount rates commensurate with the risks involved. Typically, significant increases (decreases) in any of these inputs in isolation may result in materially lower (higher) fair value measurements. Generally, in a rising interest rate environment, Farmer Mac would expect average discount rates to increase and would likely expect a corresponding decrease in forecasted prepayment rates. Conversely, in a declining interest rate environment, Farmer Mac would expect average discount rates to decrease and would likely expect a corresponding increase in forecasted prepayment rates. Prepayment rates are not presented in the table above for the Farm & Ranch and Rural Utilities securities structured as AgVantage securities because they generally do not pay down principal based on amortization schedules but instead typically have fixed maturity dates when the secured general obligations are due.

Disclosures on Fair Value of Financial Instruments

The following table sets forth the estimated fair values and carrying values for financial assets, liabilities, and guarantees and commitments as of June 30, 2013 and December 31, 2012:

Table 8.4



	June 30, 2013				December 31, 2012
	Fair Value		Carrying Amount		Fair Value		Carrying Amount
	(in thousands)
Financial assets:
Cash and cash equivalents	$	650,723	$	650,723	$	785,564	$	785,564
Investment securities	2,456,916		2,456,916		2,499,629		2,499,629
Farmer Mac Guaranteed Securities	5,058,853		5,058,853		4,766,258		4,766,258
USDA Guaranteed Securities	1,617,356		1,617,356		1,590,783		1,590,783
Loans	2,936,726		2,949,165		2,746,742		2,729,774
Financial derivatives	23,164		23,164		31,173		31,173
Guarantee and commitment fees receivable:
LTSPCs	31,621		25,404		27,805		22,863
Farmer Mac Guaranteed Securities	19,385		17,670		20,432		18,926
Financial liabilities:
Notes payable:
Due within one year	6,781,622		6,785,164		6,573,013		6,567,366
Due after one year	5,228,932		5,173,667		5,202,751		5,034,739
Debt securities of consolidated trusts held by third parties	167,892		168,488		164,910		167,621
Financial derivatives	99,063		99,063		150,682		150,682
Guarantee and commitment obligations:
LTSPCs	30,722		24,504		26,896		21,954
Farmer Mac Guaranteed Securities	16,240		14,523		17,354		15,849

The carrying value of cash and cash equivalents is a reasonable estimate of their approximate fair value and is classified as Level 1 within the fair value hierarchy. Investment securities primarily are valued based on unadjusted quoted prices in active markets and are classified as Level 2 within the fair value hierarchy. Farmer Mac internally models the fair value of its loan portfolio, including loans held for sale, loans held for investment and loans held for investment in consolidated trusts, Farmer Mac Guaranteed Securities, and USDA Guaranteed Securities by discounting the projected cash flows of these instruments at projected interest rates. The fair values are based on the present value of expected cash flows using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves and discount rates commensurate with the risks involved. These fair value measurements do not take into consideration the fair value of the underlying property and are classified as Level 3 within the fair value hierarchy. Financial derivatives primarily are valued using unadjusted counterparty valuations and are classified as Level 2 within the fair value hierarchy. The fair value of the guarantee fees receivable/obligation and debt securities of consolidated trusts are estimated based on the present value of expected future cash flows of the underlying mortgage assets using management's best estimate of certain key assumptions, which include prepayments speeds, forward yield curves, and discount rates commensurate with the risks involved and are classified as Level 3 within the fair value hierarchy. Notes payable are valued by discounting the expected cash flows of these instruments using a yield curve derived from market prices observed for similar agency securities and are also classified as Level 3 within the fair value hierarchy. Because the cash flows of Farmer Mac's financial instruments may be interest rate path dependent, estimated fair values and projected discount rates for Level 3 financial instruments are derived using a Monte Carlo simulation model. Different market assumptions and estimation methodologies could significantly affect estimated fair value amounts.