Roughly 24 hours after filing an objection to the U.S. government’s motion to stop the gathering of evidence in a case against Ginnie Mae, Texas Capital Bank (TCB) responded to the government’s attempt to dismiss the entirety of the bank’s complaint.

The case stems from Ginnie Mae’s extinguishment of Reverse Mortgage Funding (RMF) from its reverse mortgage-backed securities program.

TCB claims that it dealt with Ginnie Mae in good faith, having lent “millions of dollars in much-needed financing to help the collapsing [RMF] continue making payments to senior citizens as part of a mortgage program critical to the federal government.”

TCB’s “protection for those loans was a lien on certain collateral,” its attorneys state, and “Ginnie Mae — up to and including Ginnie Mae President Alanna McCargo — assured TCB that the collateral would be a source for repayment.”

‘Impermissible and wrong’

In its filing, TCB recognizes that Ginnie Mae was within its rights to “extinguish RMF’s mortgage servicing rights” but claims that Ginnie Mae did not specify the impact such a move would have on the liens that the bank had a vested interest in, its attorneys said.

“But months later, Ginnie Mae took the radical step of announcing that its extinguishment of RMF’s servicing rights had also purportedly extinguished TCB’s lien — a striking collateral grab unsupported by the statute and contrary to Ginnie Mae’s prior dealings with TCB, basic fairness, and common sense,” the filing reads.

TCB also claims that the FHA Commissioner “has stated that Ginnie Mae’s brazen action is impermissible and wrong.” As stated in their original complaint, they allege that Ginnie Mae’s actions are in violation of the Administrative Procedures Act (APA), “creates liability for promissory estoppel given the agency’s stark breach of its word” and also “constitutes tortious interference with property rights.”

The bank’s attorneys go on to claim that the government’s motion to entirely dismiss the complaint “does not come close” to establishing that TCB’s claims “fail on the face of the complaint,” and that “the Government’s motion focuses almost entirely on Ginnie Mae’s authority to extinguish RMF’s interests in the mortgage-servicing rights pursuant to a contract between Ginnie Mae and RMF.”

Alleged promises by Ginnie Mae

That contention, however, does “nothing to undermine TCB’s claim that Ginnie Mae lacked statutory authority to extinguish TCB’s interest in its collateral, which was not only separate from the servicing rights but also subject to no contract between TCB and Ginnie Mae,” the filing reads.

In other words, the government motion only addresses Ginnie Mae’s authority to act against a participant in its reverse mortgage securities program, and not against the separate interest that the bank maintained over the lender’s collateral.

The bank also claims that the government’s motion does not adequately address promises made by Ginnie Mae officials and the impact those promises had on the operations of the bank, attorneys said.

“At minimum, factual disputes on critical questions, from the nature of TCB’s property interest to the commitments exchanged by the parties, preclude dismissal on the pleadings alone,” the filing reads. “The Government’s motion should accordingly be denied.”

Recounting history

TCB began its relationship with RMF in 2015 by “financing […] to enable RMF to fund and operate its business — including funding for RMF’s operations involving tails,” the filing states.

“Ginnie Mae was involved in and expressly consented to various transactions between TCB and RMF,” and “also contracted with other RMF lenders, including Leadenhall Life Insurance Linked Investments Fund PLC (“LCP”). But Ginnie Mae has never sought to contract with TCB itself regarding TCB’s transactions with RMF.”

Shortly after RMF declared bankruptcy in November 2022, the lender failed to make required payments to its borrowers, resulting in Ginnie Mae reaching out to TCB, the filing reads.

“Ginnie Mae was deeply concerned about the impact of these non-payments on senior-citizen borrowers,” TCB attorneys stated. “Ginnie Mae accordingly implored TCB to lend money to RMF. But TCB was hesitant to lend money to a bankrupt company. Specifically, TCB was concerned that if Ginnie Mae seized RMF’s [mortgage servicing rights], TCB would face delays in being repaid.”

In the end, “the most senior representatives of Ginnie Mae and FHA provided commitments to TCB that the Government would provide TCB with adequate support to ensure TCB was repaid if the Government seized RMF’s MSRs.” The defendants restated assurances given by Ginnie Mae President Alanna McCargo, FHA Commissioner Julia Gordon and Ginnie Mae chief operating officer Sam Valverde, which are supported by a sworn declaration from the bank’s president of mortgage finance.

In March 2023, months after Ginnie Mae had seized control of RMF’s servicing portfolio, the company “suddenly and without warning expressed the startling position that its seizure of RMF’s servicing rights in certain mortgages months earlier had, unbeknownst to anyone at the time, resulted in the extinguishment of TCB’s security interest in the tails,” TCB attorneys state.

“TCB repeatedly reached out to the Government in an effort to resolve the foregoing issues without the need for litigation, but the Government summarily rejected all of those efforts and refused even to schedule a meeting to discuss them. TCB was thus left with no alternative but to file this action,” the bank concluded.

Ginnie Mae’s position

In its January filing responding to the TCB complaint, government attorneys claimed that by Ginnie Mae exercising its authority to extinguish RMF’s interest, the company “necessarily eliminated TCB’s interest as well,” attorneys for the government explained in its court filing. “By law, the mortgages were the ‘absolute property’ of GNMA.”

Government attorneys went on to say that TCB “ignores that each of the relevant authorities” underpinning the core elements of the dispute corroborate that Ginnie Mae “had a right in the event of default to extinguish the issuer’s interest in the mortgages and related interests,” including Ginnie Mae’s charter statute, implementing regulations, RMF’s contracts with both Ginnie Mae and TCB, and bankruptcy court orders.

A magistrate judge overseeing the case has set a series of pretrial deadlines that extend into 2025. Because of that, it is possible that government officials currently in leadership positions at Ginnie Mae and the U.S. Department of Housing and Urban Development (HUD) may not be in office should the suit progress to trial sometime next year.

November’s presidential election could bring a new administration in January 2025, and thus new decision-makers at these agencies by the time the deadlines arrive.