U.S. government attorney, representative Ginnie Mae and U.S. Department of Housing and Urban Development (HUD), a slew of new documents were filed last week in a court case Texas Capital Bank (TCB). These were primarily in response to a portion of the bank’s previous motion for summary judgment and provided grounds for dismissal of the motion.
The first document, filed on Aug. 8, was a nearly 400-page addendum containing terms of the agreement, program information and correspondence between Ginnie Mae, TCB and TCB leaders. reverse mortgage financing RMF, the former lender at the center of the controversy, filed for bankruptcy in late 2022.
The second document was a memo from Ginnie Mae that reiterated several of the government’s arguments against TCB. These include Ginnie Mae’s right to extinguish the RMF’s right, title and interest in the covered Home Equity Conversion Mortgage (HECM) loans and non-pooling “tails,” as well as “any additional amounts,” the document says, “in any is added to the balance of the previously securitized HECM loan after the closing date of the prior securitization.”
Ginnie Mae argued in the filing that TCB’s own arguments “miss the point” and that its motion for partial summary judgment was “premature” given the signed agreements between all parties involved.
“[A]Although the United States maintains that TCB has no basis, either from a legal perspective or from the available record, to assert that it has acquired rights superior to those of the GNMA, at least further factual development is needed before TCB can do anything on these issues. Summary judgment is granted,” government lawyers wrote.
In a separate filing, government lawyers asked the judge to decide on the summary judgment motion after their own motion seeking a change of venue is resolved.
“Resolving the correct forum issue before proceeding with summary judgment avoids wasting party and judicial resources litigating claims that must proceed in different courts,” government lawyers said. “No harm will be done until the court decides the correct forum.” or prejudice resulting in a delay in a summary judgment award.”
In documents filed late last month, TCB opposed the government’s motion to change the venue, saying the “forum selection clause” cited by the government in its agreement with the RMF was unenforceable in the circumstances.
“Lost attempt to dismiss [TCB]“Based on the allegations, the government requests that this court transfer the case to another court,” TCB attorneys wrote in July. “The government’s motion is based solely on the forum-selection provision in the pre-bankruptcy tail agreement, but for at least three independent reasons fail.”
These reasons included that the government was not a party to the tail agreement between the bank and the RMF; that the circumstances of the motion were not novel enough for the government to enforce the agreement even if it was a party to the agreement; and that the current question was not specifically about the tail agreement.
In court documents filed with the government in February to dismiss the original motion, TCB said it recognized Ginnie Mae’s authority to “eliminate RMF’s mortgage servicing rights.” But TCB’s lawyers said Ginnie Mae did not specify how that would affect the lien in which the bank has a vested interest.
TCB filed a lawsuit against Ginnie Mae in October 2023, accusing the state-owned company of “foreclosing TCB’s first-priority lien on tens of millions of dollars of collateral without consideration of any consideration.” The lien arises from [FHA]- Sponsorship [HECM] program.”
TCB claimed that Ginnie Mae sought help from the bank to avoid “catastrophic damage to the HECM program.” In return for lending to RMF, the bank claimed that it received a first lien on “certain HECM collateral” because it could not rely on RMF as a bankrupt entity.
Ginnie Mae subsequently denied the allegations regarding material facts relating to the agreement between the parties and the regulations governing the HECM-backed securities (HMBS) program. Although Ginnie Mae sought to dismiss the case, the trial judge allowed much of the case to proceed and dismissed only a small portion of the original complaint.
Ginnie Mae’s HMBS program is a key liquidity and investment driver for the reverse mortgage industry because it allows pooled loans to be sold to investors. The lawsuit comes as Ginnie Mae develops its new HMBS program and is being watched closely by the industry.
In a recent earnings report, industry leaders American Financial The HMBS 2.0 scheme under development was pointed to as a factor that would help further improve the company’s liquidity position.
