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 policies for fair value measurement are discussed in Note 2(p).

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.

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.

Farmer Mac performs a detailed analysis of the assets and liabilities carried at fair value to determine the appropriate level based on the transparency of the inputs used in the valuation techniques. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an instrument's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Farmer Mac's assessment of the significance of a particular input to the fair value measurement of an instrument requires judgment and consideration of factors specific to the instrument. While Farmer Mac believes its valuation methods are appropriate and consistent with those of other market participants, using different methodologies or assumptions to determine fair value could result in a materially different estimate of fair value for some financial instruments.

The following is a description of the fair value techniques used for instruments measured at fair value as well as the general classification of such instruments pursuant to the valuation hierarchy described above.

Recurring Fair Value Measurements and Classification

Available-for-Sale and Trading Investment Securities

The fair value of investments in U.S. Treasuries is based on unadjusted quoted prices in active markets. Farmer Mac classifies these fair value measurements as level 1.

For a significant portion of Farmer Mac's investment portfolio, including most asset-backed securities, corporate debt securities, senior agency debt securities, Government/GSE guaranteed mortgage-backed securities, and preferred stock issued by GSEs, fair value is primarily determined using a reputable and nationally recognized third-party pricing service. The prices obtained are non-binding and generally representative of recent market trades. The fair value of certain asset-backed and Government guaranteed mortgage-backed securities are estimated based on quotations from brokers or dealers. Farmer Mac corroborates its primary valuation source by obtaining a secondary price from another independent third-party pricing service. Farmer Mac classifies these fair value measurements as level 2.

For certain investment securities that are thinly traded or not quoted, Farmer Mac estimates fair value using internally-developed models that employ a discounted cash flow approach. Farmer Mac maximizes the use of observable market data, including prices of financial instruments with similar maturities and characteristics, interest rate yield curves, measures of volatility and prepayment rates. Farmer Mac generally considers a market to be thinly traded or not quoted if the following conditions exist: (1) there are few transactions for the financial instruments; (2) the prices in the market are not current; (3) the price quotes vary significantly either over time or among independent pricing services or dealers; or (4) there is limited availability of public market information. Farmer Mac classifies these fair value measurements as level 3.

Available-for-Sale and Trading Farmer Mac Guaranteed Securities and USDA Securities

Farmer Mac estimates the fair value of its Farmer Mac Guaranteed Securities and USDA 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. Farmer Mac classifies these fair value measurements as level 3 because there is limited market activity and therefore little or no price transparency. On a sample basis, Farmer Mac corroborates the fair value of its Farmer Mac Guaranteed Securities and USDA Securities by obtaining a secondary valuation from an independent third-party service.

Financial Derivatives

The fair value of exchange-traded U.S. Treasury futures is based on unadjusted quoted prices for identical financial instruments. Farmer Mac classifies these fair value measurements as level 1.

Farmer Mac's derivative portfolio consists primarily of interest rate swaps and forward sales contracts on the debt of other GSEs. Farmer Mac estimates the fair value of these financial instruments primarily based upon the counterparty valuations. Farmer Mac internally values its derivative portfolio using a discounted cash flow valuation technique and obtains a secondary valuation for certain interest rate swaps to corroborate the counterparty valuations. Farmer Mac also regularly reviews the counterparty valuations as part of the collateral exchange process. Farmer Mac classifies these fair value measurements as level 2.

Certain basis swaps are nonstandard interest rate swap structures and are therefore internally modeled using significant assumptions and unobservable inputs, resulting in level 3 classification. Farmer Mac uses a discounted cash flow valuation technique, using management's best estimate of certain key assumptions, which include prepayment speeds, forward yield curves, and discount rates commensurate with the risks involved.

As of December 31, 2016 and 2015, the consideration of Farmer Mac's and the counterparties' credit risk resulted in an adjustment of $0.1 million and $0.2 million to the valuations of Farmer Mac's derivative portfolio. See Note 2(h) and Note 6 for more information about Farmer Mac's derivative portfolio.

Nonrecurring Fair Value Measurements and Classification

Loans Held for Investment

Certain loans in Farmer Mac's held for investment loan portfolio are measured at fair value when they are determined to be impaired. For these impaired loans, the fair value of the loan generally is based on the fair value of the underlying property, which is determined by recent third-party appraisals. Farmer Mac uses net realizable value (fair value less estimated costs to sell) as a reasonable estimate of fair value and classifies the fair values as level 3 measurements in the tables below.

When recent third-party appraisals are not available, Farmer Mac measures loan impairment in the aggregate in consideration of the similar risk characteristics of the assets and historical statistics, and does not include these impaired loans in the tables below.

Real Estate Owned

Farmer Mac initially records REO properties at net realizable value and subsequently measures them at the lower of carrying value or net realizable value. The fair value of the REO generally is based on third-party appraisals. Farmer Mac classifies the REO fair values as level 3 measurements. Farmer Mac uses net realizable value as a reasonable estimate of fair value in the tables below.

Fair Value Classification and Transfers

As of December 31, 2016, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $4.9 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 31 percent of total assets and 65 percent of financial instruments measured at fair value as of December 31, 2016. As of December 31, 2015, Farmer Mac's assets and liabilities recorded at fair value included financial instruments valued at $6.1 billion whose fair values were estimated by management in the absence of readily determinable fair values. These financial instruments measured as level 3 represented 39 percent of total assets and 69 percent of financial instruments measured at fair value as of December 31, 2015.

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, USDA Securities, and financial derivatives during 2016, 2015, and 2014. See Note 2(b) and Note 5 for information about the transfer of available-for-sale USDA and Farmer Mac Guaranteed USDA securities to held-to-maturity as of October 1, 2016 and Note 2(b) for information about the transfer of available-for-sale Farmer Mac Guaranteed Securities to held-to-maturity as of January 1, 2014.

The following tables present information about Farmer Mac's assets and liabilities measured at fair value on a recurring and nonrecurring basis as of December 31, 2016 and December 31, 2015, respectively, and indicate the fair value hierarchy of the valuation techniques used by Farmer Mac to determine such fair value:

Table 13.1



Assets and Liabilities Measured at Fair Value as of December 31, 2016
	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	$	—	$	—	$	17,730	$	17,730
Floating rate asset-backed securities	—		43,851		—		43,851
Floating rate corporate debt securities	—		10,041		—		10,041
Floating rate Government/GSE guaranteed mortgage-backed securities	—		1,361,029		—		1,361,029
Fixed rate GSE guaranteed mortgage-backed securities	—		7,625		—		7,625
Floating rate GSE subordinated debt	—		66,953		—		66,953
Fixed rate senior agency debt	—		187,133		—		187,133
Fixed rate U.S. Treasuries	821,489		—		—		821,489
Total Investment Securities	821,489		1,676,632		17,730		2,515,851
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	—		—		4,853,685		4,853,685
Total Farmer Mac Guaranteed Securities	—		—		4,853,685		4,853,685
USDA Securities:
Trading	—		—		20,388		20,388
Total USDA Securities	—		—		20,388		20,388
Financial derivatives	—		23,182		—		23,182
Total Assets at fair value	$	821,489	$	1,699,814	$	4,891,803	$	7,413,106
Liabilities:
Financial derivatives	$	155	$	57,997	$	—	$	58,152
Total Liabilities at fair value	$	155	$	57,997	$	—	$	58,152
Nonrecurring:
Assets:
Loans held for investment	$	—	$	—	$	2,799	$	2,799
REO	—		—		349		349
Total Nonrecurring Assets at fair value	$	—	$	—	$	3,148	$	3,148



Assets and Liabilities Measured at Fair Value as of December 31, 2015
	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	$	—	$	—	$	44,924	$	44,924
Floating rate asset-backed securities	—		73,729		—		73,729
Floating rate corporate debt securities	—		9,991		—		9,991
Fixed rate corporate debt	—		9,994		—		9,994
Floating rate Government/GSE guaranteed mortgage-backed securities	—		1,355,459		—		1,355,459
Fixed rate GSE guaranteed mortgage-backed securities	—		7,904		—		7,904
Floating rate GSE subordinated debt	—		66,249		—		66,249
Fixed rate senior agency debt	—		213,987		—		213,987
Fixed rate U.S. Treasuries	992,788		—		—		992,788
Total available-for-sale	992,788		1,737,313		44,924		2,775,025
Trading:
Floating rate asset-backed securities	—		—		491		491
Total trading	—		—		491		491
Total Investment Securities	992,788		1,737,313		45,415		2,775,516
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	—		—		4,121,244		4,121,244
Farmer Mac Guaranteed USDA Securities	—		—		31,361		31,361
Total Farmer Mac Guaranteed Securities	—		—		4,152,605		4,152,605
USDA Securities:
Available-for-sale	—		—		1,888,344		1,888,344
Trading	—		—		28,975		28,975
Total USDA Guaranteed Securities	—		—		1,917,319		1,917,319
Financial derivatives	19		3,797		—		3,816
Total Assets at fair value	$	992,807	$	1,741,110	$	6,115,339	$	8,849,256
Liabilities:
Financial derivatives	$	—	$	77,199	$	—	$	77,199
Total Liabilities at fair value	$	—	$	77,199	$	—	$	77,199
Nonrecurring:
Assets:
Loans held for investment	$	—	$	—	$	11,443	$	11,443
REO	$	—	$	—	$	388	$	388
Total Nonrecurring Assets at fair value	$	—	$	—	$	11,831	$	11,831

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. There were no liabilities measured at fair value using significant unobservable inputs during the years ended December 31, 2016 and 2015.

Table 13.2



Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2016
	Beginning Balance		Purchases		Sales			Settlements			Realized and Unrealized Gains/(Losses) included in Income			Unrealized Gains/(Losses) included in Other Comprehen-sive Income			Transfers Out			Ending Balance
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	44,924	$	—	$	(26,806	)	$	—		$	6		$	(394	)	$	—		$	17,730
Total available-for-sale	44,924		—		(26,806		)	—			6			(394		)	—			17,730
Trading:
Floating rate asset-backed securities⁽¹⁾	491		—		—			(2,213		)	1,722			—			—			—
Total trading	491		—		—			(2,213		)	1,722			—			—			—
Total Investment Securities	45,415		—		(26,806		)	(2,213		)	1,728			(394		)	—			17,730
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	4,121,244		1,430,392		—			(706,446		)	(20,944		)	29,439			—			4,853,685
Farmer Mac Guaranteed USDA Securities⁽²⁾	31,361		4,100		—			(3,240		)	—			603			(32,824		)	—
Total Farmer Mac Guaranteed Securities	4,152,605		1,434,492		—			(709,686		)	(20,944		)	30,042			(32,824		)	4,853,685
USDA Securities:
Available-for-sale⁽²⁾	1,888,344		391,240		(97,954		)	(237,262		)	—			35,959			(1,980,327		)	—
Trading⁽³⁾	28,975		—		—			(8,325		)	(262		)	—			—			20,388
Total USDA Securities	1,917,319		391,240		(97,954		)	(245,587		)	(262		)	35,959			(1,980,327		)	20,388
Total Assets at fair value	$	6,115,339	$	1,825,732	$	(124,760	)	$	(957,486	)	$	(19,478	)	$	65,607		$	(2,013,151	)	$	4,891,803


⁽¹⁾	None of the unrealized gains are attributable to assets still held as of December 31, 2016 and are recorded in "Gains on trading securities."


⁽²⁾	Includes $32.8 million of Farmer Mac Guaranteed USDA Securities and $2.0 billion of USDA Securities transferred from available-for-sale to held-to-maturity on October 1, 2016.


⁽³⁾	Includes unrealized losses of $0.3 million attributable to assets still held as of December 31, 2016 that are recorded in "Gains on trading securities."



Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2015
	Beginning Balance		Purchases		Sales		Settlements			Realized and Unrealized (Losses)/Gains 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	$	40,576	$	—	$	—	$	—		$	(100	)	$	4,448		$	44,924
Total available-for-sale	40,576		—		—		—			(100		)	4,448			44,924
Trading:
Floating rate asset-backed securities⁽¹⁾	689		—		—		(657		)	459			—			491
Total trading	689		—		—		(657		)	459			—			491
Total Investment Securities	41,265		—		—		(657		)	359			4,448			45,415
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage	3,631,662		678,566		—		(138,687		)	3,090			(53,387		)	4,121,244
Farmer Mac Guaranteed USDA Securities	27,619		13,314		—		(9,482		)	—			(90		)	31,361
Total Farmer Mac Guaranteed Securities	3,659,281		691,880		—		(148,169		)	3,090			(53,477		)	4,152,605
USDA Securities:
Available-for-sale	1,731,222		363,621		—		(233,385		)	—			26,886			1,888,344
Trading⁽²⁾	40,310		—		—		(12,096		)	761			—			28,975
Total USDA Securities	1,771,532		363,621		—		(245,481		)	761			26,886			1,917,319
Total Assets at fair value	$	5,472,078	$	1,055,501	$	—	$	(394,307	)	$	4,210		$	(22,143	)	$	6,115,339


⁽¹⁾	Unrealized gains are attributable to assets still held as of December 31, 2015 and are recorded in "Gains on trading securities."


⁽²⁾	Includes unrealized gains of $0.9 million attributable to assets still held as of December 31, 2015 that are recorded in "Gains on trading securities."



Level 3 Assets and Liabilities Measured at Fair Value for the Year Ended December 31, 2014
	Beginning Balance			Purchases		Sales			Settlements			Realized and Unrealized (Losses)/Gains included in Income			Unrealized Gains/(Losses) included in Other Comprehen-sive Income			Transfers Out			Ending Balance
	(in thousands)
Recurring:
Assets:
Investment Securities:
Available-for-sale:
Floating rate auction-rate certificates backed by Government guaranteed student loans	$	65,285		$	—	$	(26,675	)	$	—		$	(825	)	$	2,791		$	—		$	40,576
Floating rate Government/GSE guaranteed mortgage-backed securities	205			—		—			(205		)	—			—			—			—
Total available-for-sale	65,490			—		(26,675		)	(205		)	(825		)	2,791			—			40,576
Trading:
Floating rate asset-backed securities⁽¹⁾	928			—		—			(685		)	446			—			—			689
Total trading	928			—		—			(685		)	446			—			—			689
Total Investment Securities	66,418			—		(26,675		)	(890		)	(379		)	2,791			—			41,265
Farmer Mac Guaranteed Securities:
Available-for-sale:
AgVantage⁽²⁾	5,070,366			1,091,475		—			(922,908		)	14,520			10,995			(1,632,786		)	3,631,662
Farmer Mac Guaranteed USDA Securities	21,234			7,627		—			(808		)				(434		)	—			27,619
Total Farmer Mac Guaranteed Securities	5,091,600			1,099,102		—			(923,716		)	14,520			10,561			(1,632,786		)	3,659,281
USDA Securities:
Available-for-sale	1,553,669			335,359		—			(209,400		)	—			51,594			—			1,731,222
Trading⁽²⁾	58,344			—		—			(19,185		)	1,151			—			—			40,310
Total USDA Securities	1,612,013			335,359		—			(228,585		)	1,151			51,594			—			1,771,532
Total Assets at fair value	$	6,770,031		$	1,434,461	$	(26,675	)	$	(1,153,191	)	$	15,292		$	64,946		$	(1,632,786	)	$	5,472,078

Liabilities:	$	(235	)	$	—	$	—		$	—		$	235		$	—		$	—		$	—
Financial Derivatives:	$	(235	)	$	—	$	—		$	—		$	235		$	—		$	—		$	—


⁽¹⁾	Unrealized gains are attributable to assets still held as of December 31, 2014 and are recorded in "Gains on trading securities.".


⁽²⁾	Includes $1.6 billion of AgVantage securities transferred from available-for-sale to held-to-maturity on January 1, 2014 and $20.7 million of AgVantage securities purchased during 2014 transferred from available-for-sale to held-to-maturity.


⁽³⁾	Includes unrealized gains of $1.8 million attributable to assets still held as of December 31, 2014 that are recorded in "Gains on trading securities."

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 December 31, 2016 and December 31, 2015.

Table 13.3



	As of December 31, 2016
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	$	17,730	Indicative bids	Range of broker quotes	90.0% - 90.0% (90.0%)
Farmer Mac Guaranteed Securities:
AgVantage	$	4,853,685	Discounted cash flow	Discount rate	1.5% - 3.3% (1.9%)

USDA Securities	$	20,388	Discounted cash flow	Discount rate	4.0% - 5.3% (5.0%)
				CPR	13% - 18% (17%)



	As of December 31, 2015
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	$	44,924	Indicative bids	Range of broker quotes	92.0% - 99.6% (96.6%)
Floating rate asset-backed securities	$	491	Discounted cash flow	Discount rate	18.3% - 23.9% (21.5%)
				CPR	10.0%
Farmer Mac Guaranteed Securities:
AgVantage	$	4,121,244	Discounted cash flow	Discount rate	1.1% - 3.3% (1.8%)
Farmer Mac Guaranteed USDA Securities	$	31,361	Discounted cash flow	Discount rate	1.0% - 3.9% (1.8%)
				CPR	9% - 20% (10.0%)
USDA Securities	$	1,917,319	Discounted cash flow	Discount rate	1.3% - 5.1% (3.1%)
				CPR	0% - 19% (7.0%)

The significant unobservable inputs used in the fair value measurements of Farmer Mac Guaranteed Securities and USDA 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 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 December 31, 2016 and December 31, 2015:

Table 13.4



	As of December 31, 2016				As of December 31, 2015
	Fair Value		Carrying Amount		Fair Value		Carrying Amount
	(in thousands)
Financial assets:
Cash and cash equivalents	$	265,229	$	265,229	$	1,210,084	$	1,210,084
Investment securities	2,515,851		2,515,851		2,775,516		2,775,516
Farmer Mac Guaranteed Securities	6,006,694		6,002,916		5,434,422		5,426,621
USDA Securities	1,934,023		2,029,613		1,917,319		1,917,319
Loans	4,481,019		4,507,435		4,027,660		3,962,044
Financial derivatives	23,182		23,182		3,816		3,816
Guarantee and commitment fees receivable:
LTSPCs	34,720		32,656		31,953		31,240
Farmer Mac Guaranteed Securities	6,197		6,215		8,872		8,949
Financial liabilities:
Notes payable:
Due within one year	8,439,515		8,440,123		9,108,468		9,111,461
Due after one year	5,260,497		5,222,977		5,009,310		4,967,036
Debt securities of consolidated trusts held by third parties	1,107,513		1,142,704		713,316		713,536
Financial derivatives	58,152		58,152		77,199		77,199
Guarantee and commitment obligations:
LTSPCs	33,860		31,796		31,015		30,301
Farmer Mac Guaranteed Securities	5,467		5,486		8,230		8,308

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 investment and loans held for investment in consolidated trusts, Farmer Mac Guaranteed Securities, and USDA 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.