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) 

Dear Mr. Vance: 

At the request of the Dallas County Auditor, you have 

asked whether Federal National Mortgage Association Guaranteed 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 furnished excerpts from the prospectus concerning the certificates. 

The Federal National Mortgage Association is popularly 

known as "Fannie Mae," and it has incorporated that sobriquet into its prospectus. In prominent, large type the 

prospectus declares: 

THE OBLIGATIONS OF THE FEDERAL NATIONAL MORTGAGE ASSOCIATION UNDER ITS GUARANTY ARE OBLIGATIONS 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 SECURITIES ACT OF 1933 AND ARE 'EXEMPTED SECURITIES' 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 

P- 5339 
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 contractual servicing responsibilities with 

respect to each Pool. In addition, 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 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 

P. 5340 
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 (Article 252933-1, Vernon's Texas Civil Statutes) . 

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 indebtedness, 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 

p. 5341 
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, 

qualify as 

subsection (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 

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, obligations 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. 

P-.5342 
. 

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 Housing Authority Bonds and Project Notes fully 

secured by contracts with the United States 

of'America provided such terms shall not include any obligation with a declining principal 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 governmental 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 

p. 5343 
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 interrupts 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, 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 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 Financing Bank Participation Certificates in 

the Federal Asset Financing Trust, New .Housing Authority Bonds and Project Notes fully 

secured by contracts with the United States 

of America.provided such terms shall not include any obligation with a declining 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 is eligible and 

lawful security for all deposits of public funds of any 

public agency to the extent of the market value thereof. 

p. 5344 
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 regarded certificates guaranteed by "Fannie Mae" as safe is the 

circumstance that, under federal law, such certificates 

'shall be lawful investments and may be accepted 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 security for the deposit of county funds placed with the depository. 

SUMMARY 

Federal National Mortgage Association 

Guaranteed Mortaaae Pass-Throuah Certificates 

may be pledged by- the deposit&y for 

County as security for the deposit of 

funds placed with the depository. 

very ruly 

n . 

MARY KELLER 

First Assistant Attorney General 

Dallas 

county 

JIM MATTOX 

Attorney General of Texas 

P. 5345 
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 

p. 5346