Judge sets pretrial deadlines in Texas Capital suit against Ginnie Mae

Key Takeaways:

– Deadline for others to join the litigation is Feb. 16
– Document discovery must be completed by May 23, 2024, and fully completed by June 13, 2024
– Deadline for all expert and factual discovery is March 14, 2025
– Alternative dispute resolution, including mediation, must take place by April 25, 2025
– Mediation requires an independent third party and is private and confidential
– The lawsuit involves a dispute between TCB and Ginnie Mae over loans given to Reverse Mortgage Funding (RMF)
– Ginnie Mae extinguished RMF’s HMBS issuer status, leaving TCB with few options to recoup the loans
– TCB claims that officials at HUD and Ginnie Mae provided assurances that TCB could monetize the collateral
– The outcome of the lawsuit may be influenced by the potential change in officials at HUD and Ginnie Mae due to the presidential election
– TCB hopes to reach an amicable settlement but is confident in its case
– Ginnie Mae argues that TCB lacks standing and disputes its authority to extinguish a lender from the HMBS program
– Ginnie Mae has been active in developing HMBS policy and making changes to the program
– The HUD Office of the Inspector General has raised concerns about the HMBS portfolio and is investigating the extinguishment of RMF from the program.

HousingWire:

Should either party in this suit wish for others to join the litigation, such motions must be filed by Feb. 16. More crucially, the magistrate judge has instructed the bank and Ginnie Mae to “have substantially completed document discovery on or before May 23, 2024,” and to have “fully completed document discovery on or before June 13, 2024.” The deadline for “all expert and factual discovery” will be March 14, 2025.

Ginnie Mae and TCB will also be given the chance to use alternative dispute resolution, including mediation, which must take place by April 25, 2025. Mediation will need to be conducted by counsel between both parties and must include at least one person who has final settlement authority on each side.

Mediation requires an independent third party to serve as mediator, and the actual proceeding “shall be private, confidential, and privileged from process and discovery, unless otherwise ordered by the court,” the document reads.

Core dispute between TCB and Ginnie Mae

The core dispute at the center of the lawsuit stems from loans given by TCB to Reverse Mortgage Funding (RMF), a formerly leading reverse mortgage lender and Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) issuer that filed for bankruptcy in late 2022, and which saw its servicing portfolio seized by Ginnie Mae soon afterward.

Ginnie Mae subsequently used its authority to extinguish RMF’s HMBS issuer status, and TCB — which believed it had first-lien authority on RMF collateral at the time it made loans to the company — saw few paths to recoup the loans following RMF’s bankruptcy.

In TCB’s initial complaint, the bank mentions appointed and U.S. Senate-confirmed officials at HUD and Ginnie Mae directly as having provided assurances that “TCB would be able to monetize the collateral if Ginnie Mae seized RMF’s mortgage servicing rights during the bankruptcy,” the original complaint said.

An election year, new Ginnie Mae leaders?

But with pretrial deadlines extending into 2025, it’s possible that these officials will no longer hold their offices by the time a trial date arrives since 2024 is a presidential election year, and the election victor will take office on Jan. 20, 2025. If the incumbent president fails to be re-elected, it’s likely that new officials will be appointed at HUD and Ginnie Mae.

New presidential administrations often bring new decision-makers and priorities with them into office, and it is unclear whether or not a new administration would be more or less likely to settle this case before trial.

While TCB previously explained that it still hopes to reach an amicable settlement with the government, “Texas Capital is confident it will prevail in this case and is committed to doing so because the law, facts and equities – in addition to the interest of thousands of seniors – are on its side” according to a statement TCB representatives shared with RMD in October after the initial complaint was filed.

However, it is also worth noting that the current front-runner for the Republican presidential nomination is Former President Donald Trump, who never appointed a Senate-confirmed Ginnie Mae president during his 2017-2021 term in office.

Incumbent Ginnie Mae President Alanna McCargo is the first Senate-confirmed Ginnie Mae president since Ted Tozer’s resignation in 2017, who served in the entirety of the Obama administration.

Ginnie Mae position, recent HMBS moves

After more than three months of relative silence on the dispute, Ginnie Mae responded to TCB’s complaint in January saying that the warehouse lender lacks standing and discounts the authority the government has to extinguish a lender from its reverse mortgage-backed securities program. Ginnie Mae is seeking dismissal of the complaint in its entirety.

“When [RMF] defaulted on its obligations, GNMA exercised its right to extinguish RMF’s interest in certain mortgages in order to ensure the timely payment to investors in securities backed by those mortgages,” its early January court filing reads. “Plaintiff [TCB] also had an interest in those mortgages — prior to extinguishment — because RMF had pledged its limited interest in those mortgages to TCB as collateral for a loan.”

Despite these legal challenges, Ginnie Mae has been very active in the development of HMBS policy due to ongoing liquidity challenges within the sector. Earlier this month, the company announced that it was exploring the development of a new HMBS product in addition to the current offering, a move lauded by former Ginnie Mae President Tozer.

Last year, the company made important changes to the HMBS program including reducing the minimum size required to create HMBS pools to assist smaller issuers, while also changing certain pool eligibility requirements to ease some liquidity strain.

Scrutiny of Ginnie Mae’s stewardship of the HMBS program has also come from within the government. Last November, the HUD Office of the Inspector General (OIG) stated that the HMBS portfolio poses a “significant risk” to Ginnie Mae in 2024, largely due to the sensitivity of HECM loans to interest rates. The HUD OIG had also announced earlier that it was opening an inquiry into the extinguishment of RMF from the HMBS program.

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Property Chomp’s Take:

Hey there! Let’s talk about the ongoing legal battle between Texas Capital Bank (TCB) and Ginnie Mae. TCB filed a lawsuit against Ginnie Mae after the government agency seized the servicing portfolio of Reverse Mortgage Funding (RMF), which TCB believed it had first-lien authority on. The core dispute in this case revolves around the loans given by TCB to RMF and the collateral that TCB claims it should be able to recoup.

Recently, the magistrate judge overseeing the case has set important deadlines and instructions for both parties involved. By February 16, any party wishing to join the litigation must file their motions. The judge has also instructed the bank and Ginnie Mae to complete document discovery by May 23, 2024, and fully complete it by June 13, 2024. The deadline for all expert and factual discovery is set for March 14, 2025.

Additionally, both Ginnie Mae and TCB will have the opportunity to engage in alternative dispute resolution, including mediation. This mediation must take place by April 25, 2025, and involve counsel from both parties, along with individuals who have final settlement authority. The mediation process will be private, confidential, and privileged unless otherwise ordered by the court.

Looking ahead, there are some interesting factors to consider. Given that the pretrial deadlines extend into 2025, it’s possible that the officials at HUD and Ginnie Mae mentioned in TCB’s complaint may no longer hold their offices by the time a trial date is set. This is because 2024 is a presidential election year, and the election winner will assume office on January 20, 2025. If there is a change in administration, new officials may be appointed, potentially impacting the case’s settlement prospects.

While TCB has expressed its desire to reach an amicable settlement, it remains confident in its position and committed to prevailing in the lawsuit. However, it’s worth noting that the current front-runner for the Republican presidential nomination is former President Donald Trump, who did not appoint a Senate-confirmed Ginnie Mae president during his previous term. The incumbent Ginnie Mae President, Alanna McCargo, is the first Senate-confirmed president since 2017.

In response to TCB’s complaint, Ginnie Mae has asserted that the warehouse lender lacks standing and discounts the government’s authority to extinguish a lender from its reverse mortgage-backed securities program. Ginnie Mae is seeking the dismissal of the entire complaint.

Despite the legal challenges, Ginnie Mae has been actively involved in the development of Home Equity Conversion Mortgage-Backed Securities (HMBS) policy. It has made changes to the HMBS program, including reducing the minimum size required to create HMBS pools to assist smaller issuers and modifying pool eligibility requirements to address liquidity strain. However, Ginnie Mae’s stewardship of the HMBS program has faced scrutiny, as the HUD Office of the Inspector General has expressed concerns about the portfolio’s risk and launched an inquiry into the extinguishment of RMF from the program.

As the legal battle between TCB and Ginnie Mae continues, the outcome remains uncertain. The case’s resolution may be influenced by the changing political landscape and the actions of the new administration that assumes office in 2025.

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