Honorable John Vance

District Attorney Dallas County Opinion

Re: NO. JM-1033

Whether Federal

. .* Government Center Mortgage Association

_ -- National

(Fannie Dallas, Texas 75202 Mae) Guaranteed Mortgage PassThrough Certificates may be pledged as security for county deposits (RQ-1611)

DearMr. Vance:

At the request of the Dallas CountyAuditor, you have askedwhether Federal National Mortgage Association Guaranteed Mortgage Pass-Through Certificates may be pledged by thedepository forDallas County as security forthe deposit of county fundsplaced with the depository. Youhave furnished excerpts fromtheprospectus concerning the certificates.
The Federal National Mortgage Association is popularly known as "FannieMae," and ithas incorporated that sobriquet into itsprospectus. In prominent, large type the prospectus declares:

THE OBLIGATIONS OF THE FEDERAL NATIONAL MORTGAGE ASSOCIATION UNDER ITSGUARANTY ARE OBLIGATIONS SOLELY OF THE CORPORATION ANDARE NOT BACKED BYTHE FULL FAITHAND CREDIT OF THE UNITED STATES. : THE CERTIFICATES ARE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933ANDARE 'EXEMPTED SECURITIES' WITHIN THEMEANING 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 inSection 304(d) of

P- 5339Honorable John Vance -Page 2 (JM-1033)

the Federal National Mortgage Association Charter Act (12U.S.C. 1716et seg.).
Each certificate offered hereby andby 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 ineach Poolwill be evidenced by a separate issue ofCertificates.

. . . . The Corporation will have certain contractual servicing responsibilities with respect to each Pool. Inaddition, the Corporation will be obligated to distribute scheduled monthly installments of principal and interest (adjusted to reflect the Corporation's servicing and guaranty fee) to Certificateholders, whether ornot received.

Statutes governing depositories for county funds are found inchapter 116ofthe LocalGovernment Code. Statutes regarding the security for county funds held by the depository are contained in subchapter Cthereof. Section 116.051, which speaks to qualifications as a depository, reads:
Within 15days after the date abank is

selected as a county depository, the bank must qualify as the depository by providing security for the funds tobe 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 thesemethods, asprovided by this subchapter; or

P. 5340Honorable JohnVance -Page 3 (JM-1033)

(2) investment securities or interests in them asprovided by Chapter 726,Acts of the 67th Legislature, Regular Session, 1981 (Article 252933-1, Vernon's Texas Civil Statutes). The section 116.051 reference to "bonds, notes, and other securities" in subsection (1) isexceedingly broad, but, as the "Revisor's Note" accompanying the code section explains, the list in subdivision (1)isbased on the source lawto sections 116.052-116.056. Section 116.054 narrows thebreadth of the section 116.051 provision. Itreads:

(a) A county depository may pledge with the commissioners court as security under this subchapter:

(1) abond, note, security of indebtedness, orother evidence of indebtedness of theUnited States if the evidence of indebtedness is SUDDOrted bv the full faith and credit of theUnited States or isauaranteed as toDrinciDal and interest bv theUnited States:
(2) abond of this state or of a county, municipality, independent school district, or common school district:
(3) abond issuedunder the federal farm loanacts:
(4) aroad district bond;
(5) abond, pledge, or other security issuedby the board of regents of The University ofTexas System;
(6) bank acceptances ofbanks 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 inthis state ifthepayment of the share or share accounts is insured by

p. 5341Honorable JohnVance -Page 4 (JM-1033)

the Federal Savings and Loan Insurance Corporation; or (9) a bond issued by a municipal corporation inthis state.
(b) Securities provided under this sectionmust have atotalmarket value equal to the amount of the depository bond. (Emphasisadded.)1
The certificates at issuehere satisfy none of the section 116.054, qualify assubsection (1), requirements, and u;Fs;emthey

"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 thisAct, have themeanings set forth below:
(a) 'Government securities' means direct obligations of theUnited States of America, obligations which in the opinion of the attorney general of theUnited States are general obligations of theUnited States and backed by its full faith and credit, obligations guaranteed by the United States of America, evidence of indebtedness of or

1. The Local Government Codewas enacted byActs 1987, 70th Legislature chapter 149,at 707 asa non-substantive recodification of existing laws. Sections 311.031(c) and (d)of the Government Codeprovide that when a statute is amended by the same legislature that repeals the statute in theprocess 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 byActs 1987, 70th Legislature chapter 846, at without reference to the repeal of the statute by enactment of the code. The amendment, which authorizes thepledge of certain certificates of deposit bybanks to secure county deposits, does not conflict with the code or affect the answer toyour question, when given effect.

P-.5342. Honorable John Vance -Page 5 (JM-1033)

particination certificates cruaranteed bv Federal Intermediate Credit Banks, Federal Land'Banks, Banks forCooperatives, 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 HousingAuthority Bonds and Project Notes fully secured by contracts with theUnited States of'America provided such terms shall not include any obligation with adeclining principal balance.
(b) 'Investment securities' means (i) aovernment securities or (ii)any general or special obligation issuedby apublic agency (approvedby the attorney general of Texas) payable fromtaxes, revenues, either orboth.
(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 ofhigher learning, any school, junior college, hospital, water, sewye, waste disposal, pollution, road, navigation, levee, drainage, conservation, reclamation, orother district or authority, and any other type of political or governmental entity of the-state ofTexas.

Sec. 2. Investment securities or any OWIISrShiD or beneficial interest therein shallbe eliaible and lawful security for all deposits of -public funds of the State of Texas and anypublic agency to the extent of themarket value thereof.

Sec. 3. Theprovisions of thisAct shall be-.cumulativeofall other existing laws,but shall be full and complete authority for investment securities to be eligible to

p. 5343Honorable John Vance -Page 6 (JM-1033)

secure public fundswithout reference to any other law. (Emphasisadded.)

The syntax of section l(a) of article 2529b-1, V.T.C.S., is complex and might be analyzed in different ways, butwe have concluded that it should be read as though thephrase "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 interrupts the list ofentities whose evidence of indebtedness in participation certificates are government securities. As so punctuated, theprovision reads:

(a) \Government securities' means direct obligations of theUnited States of America, obligations which in the opinion of the attorney general of theUnited States are general obligations of theUnited States and backed by its full faith and credit, obligations guaranteed by the United States of America, evidence of indebtedness of or particination certificates ciuaranteed bv Federal Intermediate Credit Banks. Federal Land Banks. Banks forCoooeratives, 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 Financing Bank Participation Certificates in the Federal Asset Financing Trust, New .HousingAuthority Bonds and Project Notes fully secured by contracts with theUnited States ofAmerica.provided such terms shall not include any obligation with adeclining principal balance. (Emphasis added.)
This reading of subsection l(a)of the statute, causes certificates "guaranteed by the . . . Federal Mortgage Association" Natizcn:l 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 iseligible and lawful security forall deposits of public funds of any public agency to the extent of the market value thereof.

p. 5344Honorable JohnVance -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 issuemay be pledged as security forthe deposit'of Dallas County funds isbased upon our understanding of the legislative intent. Punctuation does not control oraffect thematter. Gov't Code 0 312.012(b). It is theduty of courts, and of this office, to give statutes areasonable, 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 ofthembe secured by safe evidences of obligation. Influencing our conclusion that the legislature regarded certificates guaranteed by "FannieMae" as safe is the circumstance that, under federal law, such certificates

'shallbe lawful investments andmay be accepted as security forall fiduciary, trust, andpublic funds, the investment or deposit ofwhich shall be under the authority and control of the United States or an officer thereof.'

12U.S.C. 51723(c). Consequently, we advise that Federal National Mortgage Association Guaranteed Mortgage Pass-Through Certificates may be pledged by thedepository forDallas County as security forthedeposit of county fundsplaced with the depository.

SUMMARY

Federal National Mortgage Association Guaranteed Mortaaae Pass-Throuah Certificates may bepledged by- the deposit&y for County as security forthedeposit of fundsplaced with thedepository.

very ruly
n .

MARY KELLER FirstAssistant Attorney General Dallas county

JIM MATTOX Attorney General of Texas

P. 5345Honorable John Vance -Page 8 (JM-1033)

LOUMCCREARY Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY Special Assistant Attorney.General

RICK GILPIN Chairman, Opinion Committee
Prepared by Bruce Y~oungblood Assistant Attorney General

p. 5346