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The following opinion is presented on-line for informational use only and does not replace the official version. (Mich Dept of Attorney General Web Site - www.ag.state.mi.us) STATE OF MICHIGAN FRANK J. KELLEY, ATTORNEY GENERAL Opinion No. 6478 October 29, 1987 TOWNSHIPS: Investment of surplus funds in mortgage-backed securities The Legislature has not authorized townships to invest surplus funds in mortgage-backed certificates guaranteed by the Government National Mortgage Association under 12 USC 1721(g)(1). Honorable Alvin J. Hoekman State Representative The Capitol Lansing, Michigan 48909 You have requested my opinion on whether townships are authorized to invest surplus funds in mortgage-backed certificates guaranteed by the Government National Mortgage Association (GNMA) pursuant to 12 USC 1721(g)(1). The power of townships to invest surplus funds is set forth in MCL 129.91 et seq; MSA 3.843(1) et seq. The relevant provision of this statute is MCL 129.91(1); MSA 3.843(1)(1), which provides, in pertinent part: "The legislative or governing body of a county, city, village, township, or special assessment district, or an agency, board, or commission of a county, city, village or township, by resolution, may authorize its treasurer or other chief fiscal officer to invest surplus funds belonging to and under the control of the political subdivision, special assessment district, or agency, board, or commission of a county as follows: "(a) In bonds and other direct obligations of the United States or an agency or instrumentality of the United States." (Emphasis added.) 12 USC 1721(g)(1) provides, in pertinent part: "The Association [GNMA] is authorized, upon such terms and conditions as it may deem appropriate, to guarantee the timely payment of principal of and interest on such trust certificates or other securities as shall (i) be issued by the corporation under section 1719(d) of this title, or by any other issuer approved for the purposes of this subsection by the Association, and (ii) be based on and backed by a trust or pool composed of mortgages which are insured under this chapter or title V of the Housing Act of 1949, or which are insured or guaranteed under the Servicemen's Readjustment Act of 1944 or chapter 37 of title 38, or which are guaranteed under title XIII of the Public Health Service Act." In Rockford Life Ins Co, Appellant v. Illinois Dep't of Revenue, et al, ___ US ___; 107 S Ct 2312; 96 L Ed 2d 152 (1987), the Supreme Court, in considering whether certificates, the payment of which is guaranteed by GNMA, are exempt from state taxation under the constitutional principal of intergovernmental tax immunity or under the relevant immunity statute, stated, in a unanimous decision: "GNMA certificates are fundamentally different from the securities specifically named in the statute. Most significantly, they are neither direct nor certain obligations of the United States. As the certificate provides, it is the issuer that bears the primary obligation to make timely payments--the United States' obligation is secondary and contingent. In short, the United States is the guarantor--not the obligor." [Footnote omitted.] Therefore, even though GNMA mortgage-backed certificates issued pursuant to 12 USC 1721(g)(1) are guaranteed by GNMA, and the full faith and credit of the United States is pledged to the payment of all amounts required to be paid under the guarantee, the certificates are not direct obligations of the United States, or an agency or instrumentality of the United States. It is my opinion, therefore, that the Legislature has not authorized townships to invest surplus funds in mortgage-backed certificates guaranteed by the Government National Mortgage Association pursuant to 12 USC 1721(g)(1). Frank J. Kelley Attorney General
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