Texas Capital fights Ginnie Mae in high-stakes HECM case

Texas Capital Bank is fighting Ginnie Mae's recent request for summary judgment in a lawsuit over its right to Home Equity Conversion Mortgage assets by disputing prior court statements.

The bank is taking issue with assertions that initial and subsequent borrower draws on reverse mortgages should be considered indivisible in the context of Ginnie Mae's authorities. TCB has alleged Ginnie promised the bank $28 million in subsequent draws or "tails" in return for providing financing.

Motions for summary judgment often hinge on there being material agreement of the facts so whether or not the court thinks the question bears exploring could determine how long it will take to resolve what could be a precedent-setting case related to a controversial issuer bankruptcy. 

"The court should have the benefit of further fact discovery regarding the nature of HECM loans, the complex structure of HMBS, and the tails," Elinor Sutton, an attorney to law firm Quinn Emanuel Urquhart & Sullivan that's part of TCB's legal team said in a filing.

In a previous ruling denying an earlier motion for partial summary judgment on TCB's Administrative Procedures Act claim, U.S. District Judge Matthew Kacsmaryk drew some links between tails and initial participations, but also acknowledged some distinctions between them.

"The 'tails' are the portions of the HECM Loan that may be later securitized after previous participations were securitized into the pool. In short, a tail can only exist if there is an underlying HECM loan that has already been at least partially securitized into a pool," he said.

However, Kacsmaryk also had emphasized Ginnie "can only extinguish an issuer's rights, pursuant to a contract, in mortgages constituting an HMBS pool," separating those from "TCB's lien in RMF's interests in the tails,"in confirming court interest in hearing remaining claims.

The Department of Justice had argued on Ginnie's behalf in early January that the APA claim dismissal proved it had the right to seize tails from the bankrupt Reverse Mortgage Funding's loans, and TCB "no longer has any remaining rights or interests in the property at issue."

It's unclear whether the upheaval associated with the shift to a new administration and a Republican-dominated Congress will affect the case or the federal attorneys assigned to it.

Ginnie, the guarantor for a $2.64 trillion mortgage-backed securities market that other agencies back at the loan level, has reportedly been hit by a 25% workforce reduction as part of a larger government efficiency effort. Securitized HECMs are a small part of that larger MBS market. The DOJ also has faced cuts, according to Reuters.

There additionally have been rumors about workforce reductions at the Federal Housing Administration, the agency with loan-level responsibility for HECMs as an insurer, but the information around this has been less clear.

While there is division between the FHA's and Ginnie's responsibilities that TCB emphasizes in its filing, the latter historically has been the one to seize servicing assets associated with loans when an issuer like RMF fails to fulfill its responsibility to keep money flowing to MBS investors.