3.2 Agency Securities
Agency debt falls into two distinct categories: direct government obligations (GNMA) and government-sponsored enterprises (FNMA, FHLMC). FINRA tests which agencies carry direct federal backing and their taxability.
Key FINRA Exam Takeaways
- GNMA (Ginnie Mae): Government National Mortgage Association. ONLY agency backed by the FULL FAITH AND CREDIT of the US Government.
- FNMA (Fannie Mae) and FHLMC (Freddie Mac): Government-Sponsored Enterprises (GSEs); carry implied government backing, not direct.
- Taxation: GNMA, FNMA, and FHLMC interest is FULLY TAXABLE at all levels: federal, state, and local.
- FCS (Farm Credit System) and FHLB (Federal Home Loan Banks): Exempt from state and local tax.
| Agency | Full Name | US Gov Backing | Federal Tax | State/Local Tax |
|---|---|---|---|---|
| GNMA | Government National Mortgage Assoc. | DIRECT Full Faith & Credit | Taxable | Taxable |
| FNMA | Federal National Mortgage Assoc. | Implied (GSE) | Taxable | Taxable |
| FHLMC | Federal Home Loan Mortgage Corp. | Implied (GSE) | Taxable | Taxable |
| FHLB | Federal Home Loan Banks | Implied (GSE) | Taxable | EXEMPT |
| Treasuries | US Treasury (T-Bills, Notes, Bonds) | DIRECT Full Faith & Credit | Taxable | EXEMPT |
Knowledge Checkpoint • Section 3.2
Which of the following mortgage-backed agency securities is directly backed by the full faith and credit of the United States government?