Attorneys for the U.S. government, working on behalf of Ginnie Mae and the U.S. Department of Housing and Urban Development (HUD), last week filed a slew of new documents in their court case against Texas Capital Bank (TCB). These were primarily in response to the bank’s prior motion for a partial summary judgment and offer reasons why the motion should be denied.
The first filing made on Aug. 8 was a nearly 400-page appendix of agreement terms, program information and correspondence between Ginnie Mae, TCB and leaders at Reverse Mortgage Funding (RMF), the former lender at the center of the dispute that filed for bankruptcy in late 2022.
The second filing is a memorandum from Ginnie Mae that reiterates several arguments the government has made against TCB. These include that Ginnie Mae was within its authority to extinguish RMF’s rights, title and interest in both the Home Equity Conversion Mortgage (HECM) loans at issue and unpooled “tails,” as well as “the rights to ‘any additional amounts’ that are ‘added to the balance of a previously-securitized HECM loan after the closing date of any prior securitization,’” the filing stated.
Ginnie Mae argues in the filing that TCB’s own arguments “miss the mark,” and that its motion for a partial summary judgment is “premature” in light of the executed agreement between all involved parties.
“[A]lthough the United States maintains that, both as a matter of law and as a matter of the existing record, there is no basis for TCB to contend that it obtained rights superior to GNMA’s extinguishment powers, at a minimum, further factual development is warranted before summary judgment can be awarded on these issues to TCB,” government attorneys wrote.
In another filing, government attorneys petitioned the judge to decide the motion for summary judgment after their own motion — requesting a change of venue — is addressed.
“Resolving the correct forum before addressing summary judgment avoids wasting party and judicial resources litigating the merits of a claim that must proceed in a different forum,” government attorneys said. “No harm or prejudice would result in deferring a summary judgment ruling until the court decides the correct forum.”
In a prior filing late last month, TCB objected to the government’s motion to change venues by saying that a “forum selection clause” cited by the government in its agreement with RMF is not enforceable in this instance.
“Having lost its attempt to dismiss [TCB]’s claims, the government asks this court to transfer this case to another courthouse,” TCB attorneys wrote in July. “The government’s motion which is based solely on a forum selection clause in the pre-bankruptcy Tail Agreement fails for at least three independent reasons.”
These reasons include that the government was not a party to the tail agreement between the bank and RMF; that the circumstances of the motion are not novel enough to allow the government to enforce the agreement even if it were a party to it; and that the issue at hand is not specifically about the tail agreement.
In a February court filing to the government’s initial motion to dismiss, TCB said it recognized that Ginnie Mae was within its rights to “extinguish RMF’s mortgage servicing rights.” But TCB also claims that Ginnie Mae did not specify the impact this would have on the liens that the bank had a vested interest in, its attorneys said.
TCB brought its suit against Ginnie Mae in October 2023, alleging the government-owned company had “extinguished, in return for no consideration, TCB’s first priority lien on tens of millions of dollars in collateral” stemming from the [FHA]-sponsored [HECM] program.”
TCB contends that Ginnie Mae turned to the bank in an effort to avoid “a catastrophic disruption of the HECM program.” In return for lending money to RMF, the bank claims it received a first priority lien “on certain HECM collateral” since it could not rely on RMF, a bankrupt entity.
Ginnie Mae would go on to deny the accusations outside of material facts related to agreements between all parties, as well as regulations governing the HECM-backed securities (HMBS) program. While Ginnie Mae sought to have the case dismissed, the presiding judge allowed the bulk of the case to continue and dismissed only small portions of the initial complaint.
Ginnie Mae’s HMBS program is a key liquidity and investment driver for the reverse mortgage industry since it allows for the pooling of loans for sale to investors. The litigation is taking place in the midst of the development of a new HMBS program by Ginnie Mae, which the entire industry is watching closely.
In a recent earnings report, industry leader Finance of America cited the in-development HMBS 2.0 program as a factor that could help to further improve the company’s liquidity position.
