Honorable John Vance Opinion NO. JM-1033
District Attorney
Dallas County Re: Whether Federal National
. .* (Fannie
Government Center Mortgage Association
_ --
Dallas, Texas 75202 Mae) Guaranteed Mortgage Pass-
Through Certificates may be
pledged as security for county
deposits (RQ-1611)
Dear Mr. Vance:
At the request of the Dallas County Auditor, you have
asked whether Federal National Mortgage Association Gua-
ranteed Mortgage Pass-Through Certificates may be pledged by
the depository for Dallas County as security for the deposit
of county funds placed with the depository. You have fur-
nished excerpts from the prospectus concerning the certifi-
cates.
The Federal National Mortgage Association is popularly
known as "Fannie Mae," and it has incorporated that sobri-
quet into its prospectus. In prominent, large type the
prospectus declares:
THE OBLIGATIONS OF THE FEDERAL NATIONAL MORT-
GAGE ASSOCIATION UNDER ITS GUARANTY ARE OBLI-
GATIONS SOLELY OF THE CORPORATION AND ARE NOT
BACKED BY THE FULL FAITH AND CREDIT OF THE
UNITED STATES. : THE CERTIFICATES ARE EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SE-
CURITIES ACT OF 1933 AND ARE 'EXEMPTED SECU-
RITIES' WITHIN THE MEANING OF THE SECURITIES
EXCHANGE ACT OF 1934.
It further states:
The Guarantee.d Mortgage Pass-Through
Certificates ('Certificates') are issued and
guaranteed by the Federal National Mortgage
Association (the 'Corporation' or 'Fannie
Mae'), a corporation organized
. and existing
under the laws of the United States, under
the authority contained in Section 304(d) of
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Honorable John Vance - Page 2 (JM-1033)
the Federal National Mortgage Association
Charter Act (12 U.S.C. 1716 et seg.).
Each certificate offered hereby and by the
Supplement related hereto will represent an
undivided interest in a pool of mortgage
loans (a 'Pool') to be formed by the
Corporation. Each Pool will consist of
residential mortgage loans ('Mortgage Loans')
either previously owned by the Corporation or
purchased by it .in connection with the
formation of the Pool.
. . . .
Interests in each Pool will be evidenced
by a separate issue of Certificates.
. . . .
The Corporation will have certain con-
tractual servicing responsibilities with
respect to each Pool. In addition, the Cor-
poration will be obligated to distribute
scheduled monthly installments of principal
and interest (adjusted to reflect the Cor-
poration's servicing and guaranty fee) to
Certificateholders, whether or not received.
Statutes governing depositories for county funds are
found in chapter 116 of the Local Government Code. Statutes
regarding the security for county funds held by the
depository are contained in subchapter C thereof. Section
116.051, which speaks to qualifications as a depository,
reads:
Within 15 days after the date a bank is
selected as a county depository, the bank
must qualify as the depository by providing
security for the funds to be deposited by the
county with the bank. The depository may
secure these funds, at the ,option of the
commissioners court, by:
(1) personal bond: surety bond; bonds,
notes, and other securities: first mortgages
on real property; real property; or a
combination of these methods, as provided by
this subchapter; or
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Honorable John Vance - Page 3 (JM-1033)
(2) investment securities or interests in
them as provided by Chapter 726, Acts of the
67th Legislature, Regular Session, 1981 (Ar-
ticle 252933-1, Vernon's Texas Civil Stat-
utes) .
The section 116.051 reference to "bonds, notes, and
other securities" in subsection (1) is exceedingly broad,
but, as the "Revisor's Note" accompanying the code section
explains, the list in subdivision (1) is based on the source
law to sections 116.052-116.056. Section 116.054 narrows
the breadth of the section 116.051 provision. It reads:
(a) A county depository may pledge with
the commissioners court as security under
this subchapter:
(1) a bond, note, security of indebt-
edness, or other evidence of indebtedness
of the United States if the evidence of
indebtedness is SUDDOrted bv the full
faith and credit of the United States or
is auaranteed as to DrinciDal and interest
bv the United States:
(2) a bond of this state or of a
county, municipality, independent school
district, or common school district:
(3) a bond issued under the federal
farm loan acts:
(4) a road district bond;
(5) a bond, pledge, or other security
issued by the board of regents of The
University of Texas System;
(6) bank acceptances of banks having a
capital stock of at least $500,000;
(7) a note or bond secured by
mortgages insured and-debenturesissued by
the Federal Housing Administration;
(8) shares or share accounts of a
savings and loan association organized
under the laws of this state or of a
federal savings and loan .association
domiciled in this state if the payment of
the share or share accounts is insured by
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Honorable John Vance - Page 4 (JM-1033)
the Federal Savings and Loan Insurance
Corporation; or
(9) a bond issued by a municipal
corporation in this state.
(b) Securities provided under this
section must have a total market value equal
to the amount of the depository bond.
(Emphasis added.)1
The certificates at issue here satisfy none of the section
116.054, subsection (1), requirements, and u;Fs;emthey
qualify as "investment securities or interests
provided by [article 2529b-1, V.T.C.S.]," as stated :G
subsection (2) of section 116.051, they do not fall within
the statutory categories of acceptable security for county
deposits.
In its entirety, article 2529b-1, V.T.C.S.,,reads:
Section 1. The following terms, used in
this Act, have the meanings set forth below:
(a) 'Government securities' means direct
obligations of the United States of America,
obligations which in the opinion of the
attorney general of the United States are
general obligations of the United States and
backed by its full faith and credit, obliga-
tions guaranteed by the United States of
America, evidence of indebtedness of or
1. The Local Government Code was enacted by Acts 1987,
70th Legislature chapter 149, at 707 as a non-substantive
recodification of existing laws. Sections 311.031(c) and
(d) of the Government Code provide that when a statute is
amended by the same legislature that repeals the statute in
the process of enacting a code, the amendment is preserved
and given effect and if the statute, as amended, conflicts
with the code, the statute prevails. Section 116.051 was
partially derived from former article 2547, which 2;~;
amended by Acts 1987, 70th Legislature chapter 846, at
without reference to the repeal of the statute by enactment
of the code. The amendment, which authorizes the pledge of
certain certificates of deposit by banks to secure county
deposits, does not conflict with the code or affect the
answer to your question, when given effect.
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.
Honorable John Vance - Page 5 (JM-1033)
particination certificates cruaranteed bv
Federal Intermediate Credit Banks, Federal
Land' Banks, Banks for Cooperatives, Federal
Farm Credit System, Federal Home Loan Banks,
includinq letters of credit issued by the
district Federal Home Loan Banks, general
obligation notes of the Federal Home Loan
Bank System, and general obligation bonds of
the Federal Home Loan Bank System, Federal
National Mortaaae Association, Federal
Financing Bank Participation Certificates in
the Federal Asset Financing Trust, New Hous-
ing Authority Bonds and Project Notes fully
secured by contracts with the United States
of'America provided such terms shall not in-
clude any obligation with a declining prin-
cipal balance.
(b) 'Investment securities' means (i)
aovernment securities or (ii) any general or
special obligation issued by a public agency
(approved by the attorney general of Texas)
payable from taxes, revenues, either or both.
(cl 'Public agency' means any board,
authority, agency, department, commission,
political subdivision, municipal corporation,
district, public corporation, body politic,
or instrumentality of the State of Texas,
including without limitation any county,
home-rule charter city, general-law city,
town, or village, any state-supported
educational institution of higher learning,
any school, junior college, hospital, water,
sewye, waste disposal, pollution, road,
navigation, levee, drainage, conservation,
reclamation, or other district or authority,
and any other type of political or govern-
mental entity of the-state of Texas.
Sec. 2.
Investment securities or any
OWIISrShiD or beneficial interest therein
shall be eliaible and lawful security for all
deposits of -public funds of the State of
Texas and any public agency to the extent of
the market value thereof.
Sec. 3. The provisions of this Act shall
be-.cumulative of all other existing laws, but
shall be full and complete authority for
investment securities to be eligible to
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Honorable John Vance - Page 6 (JM-1033)
secure public funds without reference to any
other law. (Emphasis added.)
The syntax of section l(a) of article 2529b-1,
V.T.C.S., is complex and might be analyzed in different
ways, but we have concluded that it should be read as though
the phrase "including letters of. credit issued by the
district Federal Home Loan Banks, general obligation notes
of the Federal Home Loan Bank System, and general obligation
bonds of the Federal Home Loan Bank System" were set off by
parentheses. This phrase applies only to securities of
Federal Home Loan Banks, but it is so long that it inter-
rupts the list of entities whose evidence of indebtedness in
participation certificates are government securities. As so
punctuated, the provision reads:
(a) \Government securities' means direct
obligations of the United States of America,
obligations which in the opinion of the
attorney general of the United States are
general obligations of the United States and
backed by its full faith and credit, obliga-
tions guaranteed by the United States of
America, evidence of indebtedness of or
particination certificates ciuaranteed bv
Federal Intermediate Credit Banks. Federal
Land Banks. Banks for Coooeratives, Federal
Farm Credit Svstem, Federal Home Loan Banks
(including letters of credit issued by the
district Federal Home Loan Banks, general
obligation notes of the Federal Home Loan
Bank System, and general obligation bonds of
the Federal Home Loan Bank System), Federal
National Mortaaae Association, Federal Fi-
nancing Bank Participation Certificates in
the Federal Asset Financing Trust, New .Hous-
ing Authority Bonds and Project Notes fully
secured by contracts with the United States
of America.provided such terms shall not in-
clude any obligation with a declining prin-
cipal balance. (Emphasis added.)
This reading of subsection l(a) of the statute, causes
certificates "guaranteed by the . . . Federal Natizcn:l
Mortgage Association" to be "government securities"
thus, "investment securities" under subsection l(b):
Section 2 of statute declares that any ownership or
beneficial interest in investment securities is eligible and
lawful security for all deposits of public funds of any
public agency to the extent of the market value thereof.
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Honorable John Vance - Page 7 (JM-1033)
Counties are "public agencies" within the meaning of the
act. V.T.C.S. art. 2529b-1, 5 l(c).
Cur conclusion that the certificates at issue may be
pledged as security for the deposit'of Dallas County funds
is based upon our understanding of the legislative intent.
Punctuation does not control or affect the matter. Gov't
Code 0 312.012(b). It is the duty of courts, and of this
office, to give statutes a reasonable, fair construction
with a view to accomplishing such intent. See 53 Tex.
Jur.2d Statutes § 126, at 187. The legislative intent here
is clearly to protect public funds by requiring that
deposits of them be secured by safe evidences of obligation.
Influencing our conclusion that the legislature regard-
ed certificates guaranteed by "Fannie Mae" as safe is the
circumstance that, under federal law, such certificates
'shall be lawful investments and may be ac-
cepted as security for all fiduciary, trust,
and public funds, the investment or deposit
of which shall be under the authority and
control of the United States or an officer
thereof.'
12 U.S.C. 5 1723(c).
Consequently, we advise that Federal National Mortgage
Association Guaranteed Mortgage Pass-Through Certificates
may be pledged by the depository for Dallas County as secur-
ity for the deposit of county funds placed with the deposi-
tory.
SUMMARY
Federal National Mortgage Association
Guaranteed Mortaaae Pass-Throuah Certificates
may be pledged by- the deposit&y for Dallas
County as security for the deposit of county
funds placed with the depository.
very ruly
n .
JIM MATTOX
Attorney General of Texas
MARY KELLER
First Assistant Attorney General
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Honorable John Vance - Page 8 (JM-1033)
LOU MCCREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney.General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Bruce Y~oungblood
Assistant Attorney General
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