Texas Capital sues feds for reneging on reverse-mortgage loan promise

Texas Capital Bancshares Inc. has filed a lawsuit against the Government National Mortgage Association (Ginnie Mae), alleging that the federal agency failed to uphold financial support promises made to the bank. According to the lawsuit, Ginnie Mae canceled liens on collateral worth tens of millions of dollars after Texas Capital agreed to provide a loan to Reverse Mortgage Funding LLC.

Reverse Mortgage Funding LLC, one of the largest providers of government-backed reverse mortgages, had filed for bankruptcy due to increased interest rates and regulatory pressures. Ginnie Mae reportedly convinced Texas Capital to offer debtor-in-possession financing to support the borrowers impacted by the failed company.

In the complaint, Texas Capital stated that it provided the funds on an emergency basis in an effort to protect senior citizen mortgagors. However, Ginnie Mae later reversed its decision and left the bank empty-handed. The lawsuit claims that Ginnie Mae nullified the bank’s priority lien and sought to make the bankrupt Reverse Mortgage Funding its only recourse for repayment.

These actions by Ginnie Mae could have significant consequences for the reverse-mortgage industry, potentially leading Texas Capital and other lenders to withdraw financing support. The bank argues that if Ginnie Mae’s position is allowed, it may result in lenders becoming unwilling to extend financing to millions of seniors, jeopardizing their retirement plans and threatening the viability of the Home Equity Conversion Mortgage program.

The Home Equity Conversion Mortgage program, managed by the U.S. Department of Housing and Urban Development, enables older homeowners to utilize the equity in their properties for various expenses. While the number of loans made under the program has declined in recent fiscal years, they still play a crucial role in the mortgage industry.

Ginnie Mae has not yet commented on the lawsuit. Meanwhile, Texas Capital, which has assets of nearly $29 billion, believes that Ginnie Mae’s actions may have dire consequences for the already weakened reverse-mortgage sector. The bank has undergone a strategic transformation in recent years, expanding its services into investment banking, treasury, and wealth management.

In a show of confidence in the economic growth of Texas, Texas Capital recently launched its first exchange-traded fund focused on companies based in the state. The bank’s lawsuit against Ginnie Mae highlights the challenges faced by lenders and the crucial role they play in supporting seniors’ financial needs.