ROCKFORD LIFE INSURANCE COMPANY, APPELLANT V. DEPARTMENT OF REVENUE OF THE STATE OF ILLINOIS, ET AL. No. 86-251 In the Supreme Court of the United States October Term, 1986 On Appeal from the Supreme Court of Illinois Brief for the United States as Amicus Curiae Supporting Affirmance TABLE OF CONTENTS Question presented Interest of the United States Statement Summary of argument Argument: Mortgage-backed securities guaranteed by GNMA are not exempt from state taxation as "obligations of the United States" within the meaning of Rev. Stat. Section 3701 Conclusion QUESTION PRESENTED Whether mortgage-backed certificates conveying an interest in a pool of mortgages owned by the issuer are exempt from state taxation as "obligations of the United States" under Rev. Stat. Section 3701 by virtue of the fact that they are guaranteed by the Government National Mortgage Association. INTEREST OF THE UNITED STATES Section 3701 of the Revised Statutes (1875 ed.), codified in its present form at 31 U.S.C. 3124(a), immunizes "obligations of the United States" from state taxation. The United States has a strong interest in the correct application of this provision. On the one hand, the United States has a financial interest in ensuring that this immunity is not compromised or reduced, a result that could diminish the market value or investment attractiveness of federal obligations. On the other hand, the federal government's interest in its relations with the several states and in the integrity of its fiscal operations is affected if the immunity conferred by Rev. Stat. Section 3701 is mistakenly extended so as to inure to the benefit of private persons without securing or enhancing the borrowing power of the United States. Therefore, the United States has an interest here in the question whether Rev. Stat. Section 3701 should be applied to invalidate a nondiscriminatory tax imposed by Illinois on the ground of an immunity not claimed by the United States or its agencies -- an immunity that would not serve the credit needs of the United States, would inure to the benefit of private persons, and would needlessly restrict the taxing power of the State of Illinois. STATEMENT 1. This case concerns the taxability by a state of mortgage-backed securities guaranteed by the Government National Mortgage Association (GNMA, popularly known as "Ginnie Mae"). GNMA is a corporation in the Department of Housing and Urban Development (HUD). It was created in 1968 by the partition of the existing Federal National Mortgage Association into two parts -- a privately owned corporation, the Federal National Mortgage Association (FNMA, popularly known as "Fannie Mae"), and GNMA, a government-owned corporation. Title VIII of the Housing and Urban Development Act of 1968, Pub. L. No. 90-448, 82 Stat. 536 et seq.; 12 U.S.C. 1716b, 1717. The predecessor FNMA was created as a body corporate by the Housing Act of 1954, ch. 649, Section 201, 68 Stat., 612-613, although the concept of national mortgage associations originated in the National Housing Act of 1934, ch. 847, Section 301(a), 48 Stat. 1252. The purposes now sought to be advanced jointly by FNMA and GNMA were originally set forth in Section 201 of the 1954 Act, 68 Stat. 612-613, and have been carried forward today into 12 U.S.C. 1716. Those purposes are to establish secondary market facilities for home mortgages, to provide that the operations thereof should be financed by private capital to the maximum extent feasible, and to authorize facilities to provide supplementary assistance to the secondary market for home mortgages by providing a degree of liquidity for mortgage investments. In 1968, Congress added 12 U.S.C. 1721(g) to the National Housing Act in order to provide a new mechanism for furthering these purposes. Pub. L. No. 90-448, Section 804(b), 82 Stat. 542-543. This provision authorizes GNMA, "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 * * * and (ii) be based on and backed by a pool composed of mortgages which are insured" under various other federal programs. The statute specifies that the pool may contain mortgages insured by the Veterans Administration (VA), by the Federal Housing Administration (FHA), and by the Farmers Home Administration (FmHA). See 12 U.S.C. 1721(g)(1), cross-referring to 38 U.S.C. 1815, 12 U.S.C. 1715l, and 42 U.S.C. 1471. Under Section 1721(g), GNMA is authorized to collect from the issuer of a mortgage-backed certificate a reasonable fee for its guaranty. If "the issuer is unable to make any payment of principal of or interest on any security guaranteed under this subsection," GNMA is to make the payment when due and "thereupon shall be subrogated fully to the rights satisfied by such payment" (12 U.S.C. 1721(g)(1)). The statute also authorizes GNMA to provide by contract with the issuer that, in the event of default by the issuer, the mortgages constituting the pool on which the guaranteed securities were issued should become "the absolute property of (GNMA) subject only to the unsatisfied rights of the holders of the securities based on and backed by" the pool of mortgages (ibid.). And the statute provides (ibid.) that the "full faith and credit of the United States is pledged to the payment of all amounts which may be required to be paid under any guaranty under this subsection." Pursuant to its rulemaking authority contained in 12 U.S.C. 1723a(a), GNMA has promulgated detailed regulations that govern these mortgage-backed securities. 24 C.F.R. 390.1-390.17. Section 390.1 generally provides that all such transactions are governed by the specific terms of the Mortgage-Backed Securities Guides issued by GNMA and by contracts entered into by the parties. Other regulations specify eligibility requirements for issuers /1/ and establish the various obligations of the parties. The general workings of GNMA-guaranteed certificates based on a mortgage pool can be briefly described as follows. A financial institution assembles a pool of mortgages insured or guaranteed by the FHA, the VA, or another government agency. The financial institution then enters into an agreement with GNMA under which GNMA guarantees timely payment of principal and interest on certificates that will be issued based on the pool of mortgages. The financial institution as issuer then sells the certificates to investors, promising to pay the certificate holders interest and principal. The underlying pool of mortgages is the source for the payments made by the issuer, and the interest rate paid on the certificate is derived from the underlying mortgage pool. In the event that the issuer defaults on the payments, the certificate holders may recover from GNMA, which is empowered to take certain actions against the issuer. See generally New York Guardian Mortgagee Corp. V. Cleland, 473 F. Supp. 409, 411 (S.D.N.Y. 1979). More specifically, the regulations provide that two different types of mortgage-backed certificates may be issued. "Straight pass-through securities" provide that the issuer shall pay to the holders a proportionate share of the proceeds of principal and interest from the pool of mortgages, as collected, less servicing fees and other specified costs approved by GNMA. "Modified pass-through securities" provide for payment of both specified principal installments and a fixed rate of interest on the unpaid principal balance, whether or not principal and interest are collected from the mortgagors, but with all prepayments being passed through to the certificate holder. Thus, in the case of delinquent mortgages in a pool backing "modified pass-through securities," the issuer may be required to make advances to maintain the specified schedule of interest and principal payments to the certificate holders. After a Mortgage has been in default for 90 days, however, the issuer may at any time repurchase the defaulted mortgage from the pool for an amount equal to the unpaid principal. See 24 C.F.R. 390.5(a). /2/ The Illinois Court of Appeal found (J.A. 32) that "the certificates here are modified pass-through certificates." A representative example of a modified pass-through GNMA Certificate is set forth at J.A. 56-59. If the issuer defaults -- by failing to make payments as due or otherwise failing to abide by its contractual obligations -- GNMA is authorized to take action against the issuer. Such action by GNMA may include instituting a claim against the fidelity bond that the issuer is required to post (see 24 C.F.R. 390.11), or extinguishing all interests of the issuer in the pooled mortgages and making the mortgages the absolute property of GNMA, subject only to the unsatisfied rights of the certificate holders. 24 C.F.R. 390.15. The certificate holder's recourse in the event of default is against the GNMA guaranty. GNMA guarantees timely payment, in the case of "modified pass-through securities," of specified principal installments and of a fixed rate of interest on the oustanding principal balance, whether or not principal and interest are actually collected from the mortgagors. 24 C.F.R. 390.13. 2. This case involves application to appellant of the Illinois capital stock tax -- an ad valorem property tax -- for the year 1978. /3/ Appellant had purchased mortgage-backed certificates guaranteed by GNMA, as well as obligations guaranteed by various other federal agencies, /4/ and appellant sought to exclude these certificates from the corpus of its property subject to Illinois tax. Appellant asserted that the GNMA-guaranteed certificates, as alleged "obligations of the United States," were exempted from state taxation either by the Constitution directly or by Rev. Stat. Section 3701, 31 U.S.C. (1976 ed.) 742 (now codified in slightly different form at 31 U.S.C. 3124(a)). The Illinois Department of Local Government Affairs and its successor, the Department of Revenue, disagreed with appellant's contention. The Department accordingly assessed appellant's capital stock at a value of $6,937,000, a figure that included the obligations that were claimed to be exempt. This assessment was confirmed on administrative review (J.A. 48-51). Appellant sought judicial review of that determination, and the County Collector brought a separate suit to collect the taxes alleged to be due. The cases were consolidated in the Illinois Circuit Court, which entered judgment against appellant for $723,054 based on the assessment made by the Department of Revenued (J.A. 40-42). The Illinois Appellate Court affirmed the judgment of the circuit court (J.A. 18-38). Relying heavily on its prior decision in Montgomery Ward Life Ins. Co. v. Department of Local Government Affairs, 89 Ill. App. 3d 292, 411 N.E.2d 973 (1980), the court analyzed in detail the rights and obligations of the various parties under the GNMA certificates and concluded that the certificates were not "obligations of the United States" within the meaning of Rev. Stat. Section 3701 (J.A. 27-38). In particular, the court noted that GNMA was not "primarily liable" for payments on the certificates (id. at 32-33) and that the certificates were issued "by private entities" (id. at 33). The Supreme Court of Illinois granted leave to appeal, and it affirmed the appellate court's judgment (J.A. 5-16). The court addressed itself principally to the GNMA-guaranteed certificates, which it found to be the greatest part of appellant's holdings in question (see id. at 6). /5/ The court focused mainly upon this Court's decision in Smith v. Davis, 323 U.S. 111 (1944), which held that a debt of the United States owed to a contractor on open account was neither constitutionally immune from state taxation nor exempted by Rev. Stat. Section 3701. The court explained that the standards for immunity set forth in Smith were not satisfied here, both because "the securities in question do not appear to be related to the government's credit needs" and because the government's undertaking is merely a "guarantee," not a certain obligation to make payments (J.A. 11). The court also rejected appellant's reliance on Memphis Bank & Trust Co. v. Garner, 459 U.S. 392 (1983), pointing out that the decision in that case was based upon the discriminatory operation of the tax in question, and therefore did not focus on whether Rev. Stat. Section 3701 was applicable in the first instance (J.A. 11-13). SUMMARY OF ARGUMENT Appellant's contention that mortgage-backed securities guaranteed by GNMA are "obligations of the United States" within the meaning of Rev. Stat. Section 3701 is devoid of support either in legal authority or in common sense. If accepted, it would significantly extend the scope of that statutory immunity in a manner that would adversely affect state taxing authority and benefit only private parties, not the federal government, which is the intended beneficiary of Section 3701. The statute evinces no intent on the part of Congress to exempt GNMA-guaranteed certificates from state taxation, and neither GNMA nor HUD has ever taken the position that they are exempt. Nor does the economic reality of the GNMA mortgage pool system suggest that these securities are "obligations of the United States." GNMA's role is simply that of a facilitator -- by means of providing a guarantee -- of a transaction between private parties. The certificates in question are marketed by the issuing financial institution, which assembles the mortgage pool and collects profits and fees from the investors. The basic obligations are those of the individaul mortgagors whose mortgages comprise the pool. It is their payments of principal and interest, collected and remitted by the issuer, that the certificate holders expect to receive. Moreover, the issuer itself has an undeniable obligation to make timely payments to the certificate holders, and default on that obligation yields numerous adverse consequences to the issuer. This obligation is explicit in the certificate itself (J.A. 56, 57), and the issuer is required to satisfy GNMA that it will discharge this obligation before GNMA will guarantee the certificates. And when one considers that the underlying mortgages are themselves insured by the Va, the FHA, or some other federal agency, GNMA's obligation as guarantor under this system is quite secondary, if not tertiary or even further removed. Appellant's assertion that GNMA is "the only party who bears any obligation to the holders of the GNMA certificates" (Br. 10) is thus multiply and egregiously wrong. The ramifications of appellant's submission are strikingly broad. Its theory would apparently render all federally-guaranteed obligations exempt from state and local taxation, even though such obligations have been viewed for the past 100 years as not being exempt from state and local taxation. And appellant's conclusion that the certificates at issue here are exempt from state property tax would necessarily impel the conclusion that "the interest thereon" (Rev. Stat. Section 3701) is exempt from state income tax. Financial institutions would then be able, for state tax purposes, to convert taxable mortgage interest income into tax-exempt mortgage interest income simply by pooling mortgages and issuing them to investors under cover of a GNMA guaranty. Indeed, appellant's argument logically leads to the conclusion that interest paid on all federally-insured home mortgages is exempt from state taxation -- a conclusion that could enable banks, for state tax purposes, to transform themselves into essentially tax-exempt institutions. This perverse result demonstrates the unsoundness of appellant's attempted expansion of Rev. Stat. Section 3701. ARGUMENT MORTGAGE-BACKED SECURITIES GUARANTEED BY GNMA ARE NOT EXEMPT FROM STATE TAXATION AS "OBLIGATIONS OF THE UNITED STATES" WITHIN THE MEANING OF REV. STAT. SECTION 3701 1. There is nothing in the federal statutory scheme that evinces any Congressional intent that mortgage-backed securities guaranteed by GNMA should be treated as exempt from state taxation under Rev. Stat. Section 3701. In the same statute that creates the authority for GNMA to guarantee these securities, /6/ Congress has demonstrated that, where there are doubts about whether a particular federal undertaking should be exempt from state taxation, it has the ability to answer those doubts expressly. Thus, with respect to trusts of mortgages or other obligations in which listed departments or agencies of the United States have a financial interest, Congress has provided that "(t)he trust or trusts shall be exempt from all taxation" (12 U.S.C. 1717(c)(2)). And Congress has specifically provided that GNMA itself, as well as its income and assets (except real property), is exempt from state taxation (12 U.S.C. 1723a(c)(2)). In the closely related and quite detailed Section 1721(g) that is at issue here, however, Congress gave no indication of any intent to exempt the GNMA-guaranteed securities from state taxation. The federal government's administrative practice is fully in accord with the view that these securities are not "obligations of the United States" within the meaning of Rev. Stat. Section 3701. Neither GNMA nor its parent Department, HUD, has ever taken the position that these securities are exempt from state taxation. We are informed that, in recent years, the General Counsel of HUD has responded to inquiries regarding the taxability of these securities by referring the questioner to Smith v. Davis, 323 U.S. 111 (1944), and to the Illinois decision relied upon by the courts below, Montgomery Ward Life Ins. Co. v. Dep't of Local Government Affairs, 89 Ill. App. 3d 292, 411 N.E.2d 973 (1980). Both of those decisions rejected the taxpayer's claim of immunity from state taxation. 2. Appellant suggests (Br. 14) that the financial institution that issues the mortgage-backed certificate is not really an obligor thereon but is merely a fiduciary that "arranges and facilitates" a transaction for the benefit of the government. The economic reality of the mortgage-backed securities program is precisely the reverse. It is in fact GNMA that acts as a facilitator; its role in these transactions is limited to that of a guarantor assisting the consummation of a transaction between, and for the benefit of, private parties. The governmental purposes served by this program are to establish a secondary market for home mortgages and to assist the financing of home ownership with private capital. The issuance of the mortgage-backed certificates advances these purposes for it is essentially a sale by the issuer to private investors of a beneficial or ownership interest in a portion of the underlying pool of mortgages. This point is illustrated quite clearly in the U.S. Dep't of Housing and Urban Development Handbook GNMA 5500.1, GNMA I Mortgage-Backed Securities Guide (1985) at 10-1 (hereinafter GNMA Guide I): The issuer is solely responsible for "marketing" its securities issuances. The issuer, on its own, makes all necessary arrangements for the sale of securities to investors, either directly or through securities brokers or dealers. The issuer also makes all necessary arrangements for its receipt of payment for the securities it issues. Thus, the direct benefits from the transaction inure to the issuer of the certificate in the form of middleman profiles and fees, and to the purchase of the certificate if it proves to be a good investment. The benefit to the government is the indirect one of furthering the governmental purpose to enhance the availability of home mortgages by creating a strong secondary mortgage market. It is true, as appellant notes (Br. 15), that the GNMA Guide I (at 9-4, 9-5) requires that the issuer execute an (unrecorded) assignment to GNMA of its right, title, and interest in the pool of mortgages. But this is clearly a security device designed to protect GNMA in its obligation to collect and remit interest and principal from the pooled mortgages to the certificate holders in the event of the issuer's default on its obligation to make payment (see 24 C.F.R. 390.15(b)). The certificate holders are the beneficial owners of the pooled mortgages, and the regulations recognize that, in the event of default by the issuer, GNMA takes over the mortgages subject to "the unsatisfied rights therein of the holders of the securities." Indeed, Section 1721(g) acknowledges the certificate holders' prior beneficial interest when it provides that, after GNMA makes payments to them to correct the default, GNMA "thereupon shall be subrogated fully to the rights satisfied by such payment." 3. Appellant's position is predicated largely on its assertion that "GNMA is the only party bearing any obligation to the holders of the GNMA certificates" (see Br. 10-15). This assertion is erroneous on several counts. First, there can be little doubt that the focal obligations that fuel the entire program are the obligations of the individual mortgagors on the mortgages that comprise the pool. It is their payments of interest and principal that the certificate holders expect to receive, through the conduit of the issuer who is obligated to collect and remit those payments. If those individual obligations to pay interest and principal would not be fulfilled in the vast majority of cases, the secondary market that Congress sought to establish would quickly collapse. Moreover, since all of the pooled mortgages must be guaranteed or insured by certain federal agencies (for example, by the FHA or the VA), there exist secondary obligations of those federal entities that redound to the benefit of all the certificate holders. At any rate, it cannot be denied that the issuing financial institution has an obligation to make timely payments to the certificate holders. The certificate itself, in the form prescribed by the Guide, states explicitly and in capital letters that the issuer (who signs the form at the bottom) "PROMISES TO PAY" (J.A. 56) and that the issuer "shall pay to the holder, whether or not collected by the issuer, and shall remit (specified) monthly payments * * * " (J.A. 57). Indeed, the regulations provide that GNMA will not guarantee the securities if "the issuer does not satisfactorily provide for * * * (t)imely payment of principal and interest" (24 C.F.R. 390.9). Nor is this an obligation that the issuer can take lightly. If it defaults on its obligation, GNMA can take action against its property (24 C.F.R. 390.15(b)). A defaulting issuer, moreover, will lose the opportunity to earn and collect servicing fees, and both its status as an eligible issuer (24 C.F.R. 390.3) and its ability to provide the requisite fidelity bond (24 C.F.R. 390.11) will be called into serious question. Cf. GNMA Guide I, at 6-1 to 6-4. It is thus sheer sophistry to maintain that the mortgage-backed certificates impose no obligation upon their issuer. While the certificate holders's recourse in the event of default by the issuer is against GNMA as guarantor, that does not negate the existence of an obligation on the part either of the issuer or of the ultimate mortgagor. A mortgage note is no less an obligation of the mortgagor in a case where governing law requires that the mortgagee's sole recourse in the event of default is against the security. 4. In addition to the fact that it makes no common sense, appellant's contention is at odds with well-established precedent of this Court. In Smith v. Davis, 323 U.S. 111 (1944), the Court rejected the taxpayer's claim that money owed to him by the United States was an "obligation of the United States" entitled to an exemption from state tax under Rev. Stat. Section 3701. The reasons given by the Court there for rejecting the taxpayer's claim are equally applicable here. While GNMA's guarantees may enhance the credit-worthiness of home mortgages on the secondary market, those guarantees are obligations that "the United States does not use or need for credit purposes" (323 U.S. at 117). Nor is GNMA's guaranty itself an "interest-bearing obligation()" (id. at 116). And the obligations that do bear interest -- the underlying mortgages in the pool -- are not "obligations of the United States" and certainly not obligations "issued pursuant to Congressional authorization" (ibid.). Cf. 42 Op. Att'y Gen. 341 (1967) (concluding that FNMA certificates were not "obligations of the United States" for purposes of the debt limit provisions). /7/ 5. The broad ramifications of accepting appellant's submission dispel any possible doubt over whether the decision below should be affirmed. If GNMA's guaranty with respect to these mortgage-backed securities suffices to bring them within the umbrella of Rev. Stat. Section 3701, it is not apparent why all obligations guaranteed by federal entities -- such as garden-variety home mortgages insured by the VA or the FHA -- should not also qualify for exemption from state taxation in the hands of a bank or other investor. /8/ This would significantly expand the impact of Rev. Stat. Section 3701 on the taxing power of the states, since many agencies of the United States guarantee a great variety of obligations. To the best of our knowledge, none of the myriad of such federal guarantees has heretofore been judged to cause the underlying obligation to be regarded as immune from state taxation, and appellant's submission thus flies in the face of long and consistent practice by all parties to these instruments. /9/ In addition, holding the securities involved here to be tax-exempt would not advance the purposes of Section 3701. If GNMA-guaranteed certificates were immune from state property taxes, those certificates would presumably fetch an enhanced price marketed. But no benefit from that enhanced price would inure to the federal government; rather, it would inure to the financial institution that issued the certificates. Hence, the purpose of Section 3701 -- to prevent state taxes from diminishing "the investment attractiveness of obligations issued by the United States in an effort to secure necessary credit" (Smith v Davis, 323 U.S. at 117) -- is not even remotely implicated here. Appellant endeavors to seize upon a statute enacted for the sole benefit of the United States to secure a benefit exclusively for itself and other private participants in the home mortgage marketplace. /10/ More important, the impact on ad valorem taxes like the Illinois tax involved here would be only the tip of the iceberg if appellant's contention were accepted. If these GNMA-guaranteed certificates are "obligations of the United States" within the meaning of Rev. Stat. Section 3701, it necessarily follows that "the interest thereon" would be exempt from state and local income taxation. This would create a tremendous loophole that would adversely affect state tax collections. The exact size of this loophole, enormous in any event, would depend on whether the federally-guaranteed mortgages comprising the mortgage pool would qualify as "obligations of the United States" under appellant's theory. If one assumes that those underlying mortgages would not so qualify, then the interest on the pooled mortgages would be subject to state income taxation as long as the mortgages were held by the issuer and the certificates had not been issued. As soon as the financial institution issued GNMA-guaranteed certificates representing fractional interests in those pooled mortgages, however, the mortgage interest collected by the issuer and remitted by it to the certificate holders would become exempt from state and local income taxes in their hands. This would enable a financial institution, for state tax purposes, to convert taxable interest income to nontaxable interest income simply by packaging its mortgages for sale to investors. The loophole would be even more gargantuan if one assumes that the underlying mortgages -- which, as we have noted (pages 12-13, supra), will invariably be insured by the VA, the FHA, or another federal agency -- would themselves be "obligations of the United States," as the logic of appellant's argument suggests that they would be. Under that scenario, financial institutions would not even have to bother packaging their mortgages, accompanied by a GNMA guaranty, for sale to investors. A bank or other financial institution could simply confine its lending activities to FHA-insured or VA-insured home mortgages, thereby rendering all of its interest income exempt from state and local taxation. That would be one of the greatest tax shelters of all time, and it seems unlikely that this is what Congress had in mind when it enacted Rev. Stat. Section 3701. The perverse and heretofore-undreamt-of results that would flow from acceptance of appellant's position demonstrate the unsoundness of its theory. This Court should accordingly hold that the GNMA-guaranteed, mortgage-backed certificates involved here are not "obligations of the United States," and hence they are not immune from state and local taxation. CONCLUSION The judgment of the Supreme Court of Illinois should be affirmed. Respectfully submitted. CHARLES FRIED Solicitor General ROGER M. OLSEN Assistsant Attorney General Alan I. Horowitz Assistant to the Solicitor General MICHAEL L. PAUP ERNEST J. BROWN Attorneys FEBRUARY 1987 /1/ The eligibility requirements are contained in 24 C.F.R. 390.3. Among other requirements, the issuer must be in good standing as a mortgagee approved by the FHA and as a mortgage-servicer approved by FNMA or GNMA; the issuer must maintain the applicable net worth set forth in 24 C.F.R. 390.3(c); and the issuer must meet other conditions prescribed by the GNMA Guide. /2/ The regulations also establish a $250,000 minimum face amount for each issue of securities and provide that the face amount cannot exceed the aggregate unpaid principal balance of the mortgages in the pool. 24 C.F.R. 390.5(b). The minimum face amount of any individual certificate is $25,000. 24 C.F.R. 390.5(c). /3/ The tax has since been repealed, effective January 1, 1979 (J.A. 6). /4/ These included obligations guaranteed by HUD pursuant to 42 U.S.C. (1976 ed.) 3902, obligations guaranteed by the Community Development Corporation pursuant to 42 U.S.C. 4514, and obligations guaranteed by the Secretary of Commerce pursuant to 46 U.S.C. 1273(a). /5/ In this Court, appellant's challenge is limited to the taxability of the GNMA-guaranteed securities, although appellant states (Br. 2.n.1) that it also disagrees with the decision below with respect to the taxability of the securities guaranteed by other federal agencies. /6/ We note that appellant repeatedly refers to these securities (see Br. i, 9, 11, 12 n.4, 14, 17, 20) as "bonds" of GNMA. It is difficult to reconcile that terminology with the terms of these modified pass-through certificates (see J.A. 56-59). It is true that GNMA is also authorized to guarantee certain "bond-type" securities, which are governed by the regulations set forth at 24 C.F.R. 390.21-390.33. But these latter securities are not involved here, and they differ from the pass-through certificates in a number of respects. For example, the minimum face amount of "bond-type" securities is $100 million (24 C.F.R. 390.25(b)), which is 400 times that of pass-through certificates. And the regulations contemplate in the case of "bond-type" securities a form of centralized management by a trustee who is subject to government regulation (24 C.F.R. 390.29(a)). /7/ Appellanht's reliance (Br. 22-23) on Memphis Bank & Trust Co. v. Garner, 459 U.S. 392 (1983), is misplaced. That decision turned on the discriminatory nature of the state tax and, accordingly, did not focus on whether particular obligations were covered by Rev. Stat. Section 3701 at all. Most of the obligations involved in that case clearly were "obligations of the United States," and there was no reason for the Court to consider whether certain obligations of Federal Farm Credit Banks also held by the taxpayer were similarly covered by Rev. Stat. Section 3701. The Court certainly made no determination on that question. In any event, even if the Court had made such a determination, it would be at best dictum on an issue that was not disputed by the parties, and hence would provide scant assistance to appellant. Finally, the obligations of the Farm Credit Banks bear little resemblance to the mortgage-backed securities involved here. /8/ Appellant does not specifically address this point, but it apparently agrees that all such federally guaranteed obligations should be tax-exempt since it notes its disagreement with the lower courts' rejection of tax-exempt status for the non-GNMA, but otherwise federally-guaranteed, securities held by appellant (Br. 2 n.1). /9/ The general recognition that such federal guarantees should not yield exemption from state taxation appears to date back more than a hundred years. The Act of July 14, 1870, ch. 256, 16 Stat. 272 et seq., provided for the refinancing of the Civil War debt and, at Section 1, for the exemption of the newly authorized obligations from state taxation (see Smith v. Davis, 323 U.S. at 117 n.7). During its consideration by Congress, Senator Sherman assured the Senate that bonds of the Pacific Railroad, which had been guaranteed by the United States, were not within this statute, Cong. Globe, 41st Cong., 2d Sess. 1591 (1870). /10/ It should be noted that, even if appellant were correct that the mortgage-backed certificates fall within the tax exemption of Section 3701, it does not follow that appellant is entitled to the tax relief it seeks. The ad valorem tax that Illinois imposed upon the certificates was principally upon the values embodied in the underlying mortgages. Pooling the mortgages and providing a federal guaranty relating to the pool undoubtedly makes them more marketable, but the GNMA guaranty can add only marginally the aggregate of pre-existing value, especially in light of the fact that the individual mortgages in the pool were already guaranteed by a federal entity. Thus, it is questionable how much of the Illinois tax can be said to be on the alleged "obligation of the United States," i.e., the GNMA guaranty, rather than on the underlying mortgages.