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A lawsuit over rights to reverse mortgage-backed collateral stemming from the collapse of a major industry lender has been brought to an end with a summary judgment, but the plaintiffs in the case have vowed to appeal the decision.
The suit was filed by Texas Capital Bank (TCB) against Ginnie Mae in late 2023. The bank alleged that Ginnie Mae 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.”
Dispute and decision
TCB contended this occurred after Ginnie Mae turned to TCB to avoid “a catastrophic disruption of the HECM program.” In return for lending money to Reverse Mortgage Funding (RMF), TCB said it received a first priority lien “on certain HECM collateral.” The bank described it as “critically important” since without it, the only collateral TCB could rely on was a bankrupt company.
At the core of the dispute was collateral stemming from HECM-backed Securities (HMBS) “tails” — the issuance of additional securities backed by the remaining unpaid principal balance of a HECM loan after it has been securitized into an HMBS pool.
“Tail HMBS issuances are HMBS pools consisting of subsequent participations,” New View Advisors consistently notes when describing monthly HMBS issuance totals. “Tails are not from new loans, but they do represent new amounts lent.”
By eliminating RMF from the HMBS Issuer program and seizing its servicing portfolio, the bank argued that Ginnie Mae eliminated any interest that the bank had in the tails. It sought to explain why the tails were not part of the HMBS collateral governed by the original agreement to engage with RMF, but presiding Judge Matthew Kacsmaryk disagreed, according to court documents reviewed by HousingWire’s Reverse Mortgage Daily (RMD).
“Congress granted extinguishment power over mortgages,” he wrote. “It did not write ‘participations that constitute the trust or pool.’ Nor did it write ‘property that constitutes the trust or pool.’ It chose mortgages. And so that is the relevant unit GNMA holds extinguishment power over.”
He added that the relevant part of the statute at issue is “mortgages constituting the HMBS trust or pool. So the Court interprets GNMA’s extinguishment power to extend to such mortgages and declines to divvy up those mortgages into smaller units if Congress did not,” he said.
Ginnie Mae filed its original motion for summary judgment in January after the judge rejected a similar motion from the bank in October 2024.
TCB vows appeal
RMD reached out to representatives of TCB and received the following response.
“Texas Capital disagrees with the judge’s ruling and will appeal,” the bank said. “The entire industry should be alarmed at this ruling and the government’s unlawful seizure of collateral. The victims of Ginnie Mae’s unlawful action will be the seniors who rely on the reverse mortgage program to pay basic expenses.”
The bank went on to say that there will be major consequences for the wider reverse mortgage industry if the decision remains unchallenged.
“Should Ginnie Mae’s egregious actions be allowed to stand, it will have consequences far beyond this case, most seriously, the chilling effect on the industry, including the ability and willingness of Texas Capital and others to participate in programs like this one,” the bank explained.
Kacsmaryk’s decision was filed “with prejudice,” meaning that the bank cannot bring the same case again in the same court — in this case, the U.S. District Court for the Northern District of Texas. But the bank has recourse through the appellate court system.
RMD received an initial response from representatives at the U.S. Department of Housing and Urban Development (HUD) and will include their full response upon receipt.
