Ginnie Mae contends TCB can’t rely on alleged verbal promises in lawsuit

Texas Capital Bank says that verbal assurances from high-ranking HUD officials were given regarding RMF collateral, but the government says they’re not enforceable

Since the original filing of a lawsuit about the extinguishment of a priority lien tied to the loan portfolio collateral of Reverse Mortgage Funding (RMF), Texas Capital Bank (TCB) has argued in court that it was given verbal assurances from high-ranking officials at Ginnie Mae and the Federal Housing Administration (FHA) that its interests would be protected.

But government attorneys representing Ginnie Mae (GNMA) say that it doesn’t matter whether or not such verbal promises were made. The defense is arguing in the U.S. District Court for the Northern District of Texas that verbal agreements are not legally binding and the case should be dismissed, according to court filings reviewed by RMD.

In addition to denying that any such promises were made, attorneys for the government argue they are immaterial, saying that “even if such promises occurred, such promises would have no legal effect.”

New government filing

In addition to the contention that verbal assurances have no impact on their agreement, government attorneys contend that neither the Administrative Procedure Act or the Federal Tort Claims Act “provides a mechanism to expand TCB’s rights beyond those provided in its contracts.”

Instead, TCB must rely primarily on the executed agreement for any legal remedies, “and its agreement expressly preserves GNMA’s rights, including the right to extinguish RMF’s entire interest in the mortgages, which applies to TCB’s derivate interest in the Tails,” the filing reads.

Attorneys for the U.S. government have repeatedly requested for the claims to be dismissed.

The expressed authority to allow Ginnie Mae to extinguish RMF’s participation in the Home Equity Conversion Mortgage (HECM) and HECM-backed Securities (HMBS) programs was also not targeted at TCB, the government stated.

“Extinguishing RMF’s interest in the HECMs also eliminated TCB’s interest in the HECM Tails, because TCB’s interest derived entirely from RMF’s, which the Tail Agreement itself recognizes,” the filing reads.

TCB claims that Ginnie Mae had waived its extinguishment rights in the relevant agreement, which the government characterizes as inaccurate.

The government also explained that TCB endured interference with its property rights on the liens it maintained over RMF’s collateral. But since “GNMA had the right to extinguish RMF’s interests pledged as collateral to TCB,” the bank “fails to state a claim,” the government stated.

TCB claims

In a February court filing responding to the government’s initial motion to dismiss, TCB said it recognized that Ginnie Mae was within its rights to “extinguish RMF’s mortgage servicing rights.” But TCB also claims that Ginnie Mae did not specify the impact this would have on the liens that the bank had a vested interest in, its attorneys said.

“But months later, Ginnie Mae took the radical step of announcing that its extinguishment of RMF’s servicing rights had also purportedly extinguished TCB’s lien — a striking collateral grab unsupported by the statute and contrary to Ginnie Mae’s prior dealings with TCB, basic fairness, and common sense,” the February filing reads.

TCB also claims that “Ginnie Mae lacked statutory authority to extinguish TCB’s interest in its collateral, which was not only separate from the servicing rights but also subject to no contract between TCB and Ginnie Mae.”

Part of TCB’s claim rests on the verbal assurances it allegedly received from both the president of Ginnie Mae and the FHA Commissioner, which the government challenges as immaterial to the executed agreement.

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