The federal judge overseeing a case brought by Texas Capital Bank (TCB) against Ginnie Mae has dismissed a portion of the bank’s complaint against the government-owned company but will allow the majority of the case to progress, according to court filings reviewed by RMD.

Presiding Judge Matthew Kacsmaryk ruled in the U.S. District Court for the Northern District of Texas that Ginnie Mae’s extinguishment of Reverse Mortgage Funding (RMF) from the Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) program — subsequently impacting the bank’s “first priority lien” over certain assets — was not “arbitrary and capricious,” siding with Ginnie Mae on that point but allowing most other expressed elements of the complaint to continue.

An action taken that is determined to be “arbitrary and capricious” would translate into “willful and unreasonable action without consideration or regard for the facts and circumstances,” according to Cornell Law School’s Legal Information Institute.

“Plaintiff avers that Ginnie Mae acted arbitrarily and capriciously ‘when it extinguished TCB’s interest in the [HECM Tails],’” the judge wrote in citing the complaint by the bank. Citing precedent, the judge says that the claim cannot be considered as laid out by TCB.

In consideration of the wider dismissal motion filed by the federal government, however, the judge determined that the majority of the arguments laid out by TCB against Ginnie Mae have merit worthy of the trial process and will allow the case to continue.

The judge also sided with Ginnie Mae regarding claims of “promissory estoppel” by TCB, which “refers to the doctrine that a party may recover on the basis of a promise made when the party’s reliance on that promise was reasonable, and the party attempting to recover detrimentally relied on the promise” according to Cornell’s Legal Information Institute.

“[TCB] itself states that “the loans TCB made […] had been induced by Ginnie Mae and were made in reliance on the assurances that Ginnie Mae and FHA had provided to TCB,’” the judge wrote in citing the complaint. “Hence, Plaintiffs promissory estoppel claim must be dismissed, and [Ginnie Mae]’s argument regarding improper pleading need not be addressed. Both the facts at hand and Fifth Circuit precedent [lead to] that result.”

The majority of the claims made by TCB will be allowed to continue, including one alleging that “Ginnie Mae seeks to declare by fiat that TCB’s only recourse for repayment is RMF — a bankrupt entity with few if any assets,” according to the original complaint.

TCB attorneys also claim that Ginnie Mae’s positions are not supported by previously approved agreements, nor are they supported by law. On top of this, TCB claims that in March 2023, “the FHA’s current Commissioner, who also holds the title of Assistant Secretary of Housing and Federal Housing Commissioner at HUD, stated that FHA disagrees with Ginnie Mae’s position.”

Ginnie Mae originally filed to have the case dismissed in January, saying then that TCB lacks standing and discounts the authority the government has to extinguish a lender from its reverse mortgage-backed securities program. The judge largely disagreed.

Pretrial deadlines were set in January by a magistrate judge, but 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.

When asked about the current development, attorneys for TCB referred RMD to its previous statement offered upon the case’s filing in October 2023.

“Unfortunately, Ginnie Mae has refused to honor multiple specific commitments it made to Texas Capital, to honor its legal obligations to Texas Capital and to desist from its unlawful seizure of collateral that rightly belongs to Texas Capital,” the statement reads in part.

“Those actions by Ginnie Mae have left Texas Capital no choice but to pursue legal action to protect the firm’s rights. Failure to take action under these circumstances would not only harm Texas Capital but also have a chilling effect on the industry, including the ability and willingness of Texas Capital and others to participate in programs like this one.”

Representatives for HUD previously informed RMD that it does not comment on active litigation.