Ginnie Mae request denied in Texas Capital Bank lawsuit

A court denied a venue change request Ginnie Mae made in a lawsuit filed against it by Texas Capital Bank, clearing the way for the closely watched litigation involving an issuer bankruptcy to potentially move toward partial summary judgment. 

Ginnie Mae had sought to transfer the case from the Northern District of Texas' Amarillo division to Dallas, arguing that a "related" agreement TCB had with an issuer called for it, but U.S. District Judge Matthew Kacsmaryk rejected arguments that the pact cited was applicable.

The denial of the venue change request suggests the lawsuit could be on a faster track toward a decision. The market is watching this case closely since the outcome has the potential to impact business interactions with Ginnie Mae, a related government watchdog investigation or legal precedent.

(The Department of Housing and Urban Development's Office of Inspector General has been investigating the circumstances surrounding Reverse Mortgage Funding's bankruptcy. Ginnie Mae is a HUD affiliate.)

While the judge's order acknowledged the point that forum selection clauses in agreements can apply to a "closely related" party like Ginnie, he said the agreement between TCB and Reverse Mortgage Funding cited in the case did not meet the requirements due to a restrictive clause.

"Defendants did not establish the factors to satisfy the closely related test to permit nonsignatory enforcement," he said in an opinion and order filed in the case on Sept. 3.

The agreement Ginnie cited "explicitly states that no others may invoke or rely on the terms," Kacsmaryk said.

Ginnie and its representatives had argued that the venue should be Dallas not only because it was specified in the agreement between the bank and Reverse Mortgage Funding, but also because TCB is headquartered there and it's more convenient for travel from Washington.

(The Amarillo court also is allegedly one of the venues that groups with cases against the Biden administration target because the judges are Trump appointees, according to Bloomberg Law. Kacsmaryk has not responded to requests for comment.)

The circumstances in the TCB-Ginnie Mae case are linked closely to a key role the latter plays in the mortgage market when a bankruptcy of one of its securities issuers occurs.

Ginnie guarantees securitizations of mortgages that other government agencies back at the loan level and may act to seize a bankrupt issuer in order to ensure that payments and cash-flows related to the bonds continue to be administered properly for MBS investors.

At issue in the bank's case is its alleged agreement to provide debtor-in-possession financing in connection with the RMF bankruptcy. The bank alleges it was promised the right to certain assets in exchange for that financing but did not receive these after Ginnie took possession.