Ginnie Mae fights efforts to bring APA into Texas Capital suit

Ginnie Mae filed an answer to Texas Capital Bank's partially dismissed complaint in federal district court last week, arguing against TCB's allegations that it violated the Administrative Procedure Act.

Ginnie pushed back against assertions that its seizure of collateral allegedly promised to the bank in return for providing tens of millions of dollars in financing was "in excess of statutory authority" in a filing in Texas' Northern District.

The government agency argued that the act "does not authorize the award of monetary damages" and said that an APA claim should be barred because of the bank's "failure to exhaust its administrative remedies."

Ginnie reiterated requests for a dismissal of the case filed in Texas' Northern District, noting that it "acknowledges that the plaintiff requests the relief" but "denies that it is entitled to it."

The agency also doubled down on repudiating claims it made certain promises to TCB in its latest response to the bank's complaint from last October.

In that complaint, the bank alleged "senior Ginnie Mae representatives, including [retiring] President [Alanna] McCargo explicitly assured TCB that it would be repaid" and that the rights to certain reverse mortgage assets were part of that agreement.

TCB provided the financing in conjunction with Reverse Mortgage Funding's bankruptcy and Ginnie seized RMF's servicing rights in late 2022.

Specifically at issue in the case are rights associated with "tails," or the cash-flows from draws older adults make on home-equity withdrawal loans after the initial disbursement gets securitized. Texas Capital said it would not have agreed to provide financing without these rights.

While Ginnie has a history of working with the industry to a degree on policy, it's under a lot of pressure to protect the limited funding it uses to protect a multi-trillion-dollar global securitization market from risk when one of the mortgage companies it works with fails, particularly now.

Currently, the Department of Housing and Urban Development's Inspector General is investigating Ginnie's handling of RMF's bankruptcy, and has noted that "extinguishing issuers and seizing their portfolios places significant stress on Ginnie Mae's operations."

Ginnie is part of HUD, and reverse mortgages are a small but influential subset of the securitizations Ginnie guarantees and other agencies back at the loan level. The version of these loans found in Ginnie Mae securitizations are known as Home Equity Conversion Mortgages. Another arm of HUD, the Federal Housing Administration, insures HECMs as loans.

A limited number of players are involved in the reverse mortgage market, which can complicate Ginnie's work when a failure occurs, particularly when rates are volatile. The agency typically relies on outside mortgage companies to ensure securitized loan cash-flows get to investors.

There has been some broader tension between Ginnie and the industry over collateral rights in financial arrangements.

Industry advocates have repeatedly asked that Ginnie adjust contractual rights in these arrangements more in their favor, even after some of its leaders like former President Ted Tozer have made attempts to make the agreements more equivocal.

TCB and Ginnie do not appear to have utilized a typical agreement but rather had negotiated the terms of the emergency financing.

A decisive ruling in the Texas Capital Bank lawsuit may not unfold after the federal election this fall, with the timeline for factual discovery set to continue into next year.