Federal housing authorities persuaded Texas Capital Bancshares to help with the fallout from a bankrupt reverse-mortgage provider, then went back on their promises of financial support, the company said in a lawsuit Wednesday.
Ginnie Mae canceled liens on tens of millions of dollars in collateral after the bank agreed to make a loan to Reverse Mortgage Funding LLC, according to the lawsuit. The loan was intended to prop up customers of the failed company, which was one of the largest providers of government-backed reverse mortgages.
The firm's Texas Capital Bank unit provided the funds "on an emergency basis, in an effort to protect thousands of senior citizen mortgagors," the bank said in the complaint. "Just weeks later, Ginnie Mae reversed course and purported to leave TCB empty-handed."
The controversy traces its roots to last year's bankruptcy of Reverse Mortgage Funding. Like many in the industry, the firm had been squeezed by surging interest rates and regulatory pressures. Texas Capital claims in the lawsuit that Ginnie Mae persuaded it to provide debtor-in-possession financing after the failure of Reverse Mortgage Funding.
"After inducing TCB to lend tens of millions of dollars so as to rescue RMF, thousands of retirees, and the politically important" Home Equity Conversion Mortgage program, Ginnie Mae nullified the bank's priority lien, according to the lawsuit, which was filed in federal court in Amarillo, Texas. "Ginnie Mae seeks to declare by fiat that TCB's only recourse for repayment is RMF — a bankrupt entity with few if any assets."
Texas Capital said Ginnie Mae's actions may force it to quit making reverse mortgages entirely, adding to pressure on the already weakened industry.
"If permitted, Ginnie Mae's position will likely trigger an unwillingness on the part of lenders (including TCB) to extend financing necessary for millions of current and future seniors to fund their retirement, and will threaten the viability of the HECM program," the company said in the complaint.
Ginnie Mae didn't immediately respond to a request for comment on the lawsuit.
The HECM program, administered by the U.S. Department of Housing and Urban Development, allows older homeowners to tap the equity built up in their properties for expenses such as home repairs or general living costs. Loans made under the program make up a small percentage of the overall mortgage industry. In the fiscal year ended Sept. 30, 2022, banks made 64,489 HECM loans. In the one that ended last month, that figure dropped to 27,397. Big banks generally don't operate in this corner of the mortgage market.
Reverse mortgages have a somewhat-checkered past and a lingering reputation of being complex loans for the seniors that turn to them. But, as fellows at the Urban Institute said in a recent report, they can also serve as a cash solution for those who may have considerable equity in their homes.
Texas Capital is the 64th largest lender in the U.S., with almost $29 billion in assets as of June 30. Over the past 2 and a half years, the bank has undergone a transformation in strategy under new leadership with a focus on being a full-service financial services firm. The company expanded into investment banking, treasury and wealth management services after recovering from a volatile period amid a terminated merger deal in 2020.
In July, the bank launched its first exchange-traded fund that gives investors exposure to companies based in Texas — a bet on economic growth in the state.
The case is Texas Capital Bank v. Government National Mortgage Association, 2:23-cv-00156, US District Court, Northern District of Texas (Amarillo).
—With assistance from Madlin Mekelburg
