Rockford Life Insurance Co. v. Illinois Department of Revenue

Private financial institutions issued securities titled Mortgage-Backed Certificate Guaranteed by Government National Mortgage Association (GNMA), commonly known as Ginnie Maes. Under these certificates, the financial institutions were required to make timely payments of principal and interest. Payment was guaranteed by GNMA, which pledged the full faith and credit of the United States. GNMA was a wholly owned government corporation within the United States Department of Housing and Urban Development. Through guaranteeing payment of the certificates and thereby minimizing risk, GNMA became able to draw private investors into the mortgage market. Without GNMA’s guarantee, there would have been far less liquidity in the market for mortgage securities. Although GNMA provided the guarantee for payment, the primary obligation to actually make those payments fell on the issuers of the certificates. The issuers each possessed a pool of federally guaranteed mortgages. This pool of individual mortgages provided a stream of payments that the issuer utilized to pay principal and interest under the GNMA certificates. The mortgages also served as security for the obligations due under the certificates. GNMA itself was paid a fee by the issuer to cover the cost of regulatory duties. No federal funds were used in connection with the GNMA certificates unless the issuer defaulted, in which case GNMA had to guarantee the payment. In some GNMA certificates, the issuer had to make payment to the holders even if an individual mortgage within the pool of mortgages went into default. In these situations, the issuer could pursue recourse against the individual mortgagor but could not pursue any recourse against GNMA.