AGO 1993-054.

• Case Date: December 16, 1993
• Court: Ohio

Ohio Attorney General Opinions 1993. AGO 1993-054. December 16, 1993OPINION NO. 1993-054The Honorable Mary Ellen Withrow Treasurer of State State of Ohio 30 East Broad Street Columbus, Ohio 43266-0421 Dear Treasurer Withrow: You have requested a formal opinion regarding whether the program described below is a permissible investment by the Treasurer of State under Ohio law. You have indicated that a program has been proposed to the Treasurer that involves the investment of a portion of the state funds held by the Treasurer in certain participating mortgage-backed securities originated upon quality multifamily housing properties within the State of Ohio. As described in the materials submitted in connection with your request, the payment of principal and interest on the securities will be 100% guaranteed or insured by the Government National Mortgage Association ("GNMA") or the Federal Housing Administration of the United States Department of Housing and Urban Development ("FHA"). These materials emphasize that the proposed investment differs from programs involving collateralized mortgage obligations ("CMO's") or other indirect forms of ownership of governmental obligations because under the proposed program the Treasurer will directly purchase and hold the participating mortgage-backed securities. Accordingly, the Treasurer, as the holder of the securities, will have the direct benefit of the GNMA guaranties or FHA insurance, as opposed to being an indirect beneficiary of such obligations under an indirect pledge or other collateralized structure. In addition to the principal and interest, an investor in such participating mortgage-backed securities will be entitled to participate in increases in the value of the underlying properties by receiving additional payments contingent upon the success of the project. In view of the investor's right to receive these additional payments that may accrue, such securities bear interest at a rate which is somewhat below the market interest rate borne by comparable securities which do not possess a participatory component. Unlike the principal and interest, however, these additional contingent payments are not guaranteed or insured by the United States Government.

Organization and Status of GNMA and FHA as Part of the United States Government

GNMA was created in 1968 by partition of the Federal National Mortgage Associationífn into two separate and distinct corporations: (1) Federal National Mortgage Association ("FNMA") and (2) GNMA. See Housing and Urban Development Act of 1968, Pub. L. No. 90-448, Title VIII, §801, 82 Stat. 476, 536 (codified as amended at 12 U.S.C. §1716b (1988)). Such legislation provided that FNMA would be a "Government-sponsored private corporation," and that GNMA would "remain in the Government [of the United States of America]." Id.; see also 24 C.F.R. §300.5 (1993) ("[t]he Association [GNMA] is a Government corporation in the...