Texas Capital Bank followed through with its planned appeal of a federal district court ruling in a lawsuit with Ginnie Mae over Home Equity Conversion Mortgage assets, according to a new filing.
TCB filed a brief notice this week that it has moved the fight against the government corporation to the 5th U.S. Circuit Court of Appeals. U.S. District Judge Matthew Kacsmaryk of Texas' Northern District previously dismissed the case with prejudice, preventing its return to his court.
The bank has said the previous decision could have a "chilling effect" on the industry's interest in working with Ginnie Mae given allegations it did not follow through on a promise regarding $28 million in collateral assets from the
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Kacsmaryk, a 2019 Trump appointee, dismissed the bank's case on the grounds that TCB couldn't legally prove its claims that Ginnie violated the
Ginnie Mae's power to extinguish liens and seize collateral did not differentiate between the initial participation in the loan, which gets securitized separately at the outset from the "tails" or subsequent draws, according to Kacsmaryk's reading of the applicable statute.
The bank had argued that Ginnie, which is also known as the Government National Mortgage Association, violated one of the requirements that must be met for it to extinguish liens "in any mortgage or mortgages constituting the trust or pool" given the tails' distinction.
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Kacsmaryk ruled that "the statute stipulates that the relevant unit is a 'mortgage or mortgages'" and that "the HECM Loan — no matter its divisions — is one single mortgage."
"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 added in his opinion and order.
He also ruled against making a distinction based on the separation between tails and initial participations in securitization because "even if only a portion of an HECM loan is in a pool, that HECM loan is one of the mortgages constituting that pool."
"Congress did not write 'participations constituting the trust or pool.' It also did not write 'parts of mortgages constituting the trust or pool.' It wrote 'mortgages constituting the trust or pool,'" Kacsmaryk said.
The judge furthermore asserted that tortious interference could not be claimed because the plaintiff would need to prove Ginnie had "neither just cause nor legal excuse."
"TCB admits 'the existence of a 'just cause' or 'legal excuse' turns entirely on whether Ginnie Mae had statutory authority," Kacsmaryk said, noting that "GNMA had that authority here."
The depository's claim to the tails goes back to bankruptcy court-approved debtor-in-possession financing it provided to Reverse Mortgage Funding. Ginnie Mae agreed to the financing secured by the tails on the condition that the funding did not impact its rights as a guarantor.
The financing was initially obtained during a period when Ginnie initially withheld extinguishment of Reverse Mortgage Funding's rights to HECMs on the condition that the company met certain requirements, something it ultimately failed to do.
