Judge sets pretrial deadlines in Texas Capital suit against Ginnie Mae

The presiding judge in a lawsuit playing out in the U.S. District Court for the Northern District of Texas between warehouse lender Texas Capital Bank (TCB) and Ginnie Mae is progressing with new, pretrial deadlines that have been set by a magistrate judge, according to court documents reviewed by RMD.

With deadlines extending into 2025, it’s 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.

Deadlines from the magistrate judge

Initial disclosures between the two parties must be submitted to the court by Jan. 24, while agreements and proposed stipulations for information to be used based on electronic records must be submitted by Jan. 31.

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.