HousingWireHousingWire
A government-led effort to change the venue in a case brought by Texas Capital Bank (TCB) against Ginnie Mae over reverse mortgage-related collateral has been denied by presiding Judge Matthew Kacsmaryk, according to a court filing reviewed by HousingWire’s Reverse Mortgage Daily (RMD).
In June, attorneys representing the U.S. Department of Housing and Urban Development (HUD) and the named defendant, Ginnie Mae, filed a motion arguing that a contract clause had been violated by TCB’s choice to file the case in Amarillo, Texas, as opposed to Dallas.
The forum issue
The government contended that the move violated a “forum selection clause” in its tail agreement with Reverse Mortgage Funding (RMF), the agreement at the center of the dispute. The following month, TCB filed an objection to the request by saying that the clause cited by government attorneys is not enforceable. Ginnie Mae fired back in early August, alleging that the bank was seeking to “avoid its agreement to the forum selection clause.”
But the final word from Kacsmaryk came down on the side of TCB, who said that the plaintiff’s argument was ultimately more persuasive.
Citing language in the forum selection clause that specified only RMF and TCB as parties to the agreement, the judge said that the agreement at issue “was not between TCB and [the government], but they nevertheless seek enforcement of its forum selection clause.”
The government and any of its relevant associated entities is a “nonsignatory” to the agreement, and thus “cannot lay claim to the benefits of the forum selection clause,” Kacsmaryk said.
Kacsmaryk also accounts for part of the government’s argument claiming that “Ginnie Mae held the title to the assets underlying the agreement, TCB’s rights under the contract ultimately derived from Ginnie Mae, TCB’s rights under the contract were subject to Ginnie Mae’s rights, and TCB avers that ‘Ginnie Mae was heavily involved with’ negotiating the contract,” according to the early August filing submitted by the government.
But Kacsmaryk said this only applies if the agreement itself does not specifically exclude non-signatories.
“The plain terms of the tail agreement between TCB and RMF explicitly state that no others may invoke or rely on the terms of the tail agreement ‘in any manner whatsoever,’” he wrote. “[The government does] not address this hurdle at all in their briefing.”
He also stated that a lack of common ownership between RMF and Ginnie Mae precludes the government from the benefits of the forum selection clause in the original agreement, since that is the only circumstance in which a non-signatory could be considered under previously established legal precedent.
Recent history, election dynamics
TCB brought its suit against Ginnie Mae in October 2023, alleging that 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.”
This was after Ginnie Mae allegedly turned to TCB in an effort to avoid “a catastrophic disruption of the HECM program.” In return for lending money to RMF, TCB said it received a first priority lien “on certain HECM collateral,” which the bank described as “critically important” since without it, the only collateral TCB could rely on was a bankrupt company in RMF.
Ginnie Mae previously sought to have the case dismissed, but the presiding judge allowed the bulk of the case to continue and dismissed only small portions of the initial complaint. Filing deadlines extend into early 2025, so it is currently unclear whether the key, current leaders at HUD and Ginnie Mae will still be in office by the time these dates arrive. Outside of career officials, other leaders are appointed by the President of the United States.
After President Joe Biden decided not to run for reelection, a new president is guaranteed to be in office in early 2025, which could bring new leaders to HUD and Ginnie Mae regardless of the ultimate victor.
The case is being closely watched by the reverse mortgage industry. Ginnie Mae’s Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) program is a key liquidity and investment driver for the entire industry, since it allows for the pooling of reverse mortgages to be sold to investors. The litigation is taking place in the midst of the development of a new HMBS program by Ginnie Mae.
