On October 18, the U.S. District Court for the Northern District of Texas denied a motion for partial summary judgment filed by the plaintiff, a bank, against Ginnie Mae. The dispute centered on Ginnie Mae’s extinguishment of the plaintiff’s first-priority lien on collateral related to a HUD-administered reverse mortgage program after the issuer defaulted. The court found that Ginnie Mae acted within its statutory authority under the Home Equity Conversion Mortgage (HECM) and HECM Mortgage-Backed Securities (HMBS) programs to extinguish the issuer’s interests, which included the plaintiff’s derivatives in the “tails” of the HECM loans.
The issuer had defaulted under the Guaranty Agreement with Ginnie Mae, allowing the federal mortgage association to take full ownership of the HECM loans. Ginnie Mae made multiple attempts to negotiate with the issuer but ultimately terminated the issuer from the HMBS program and extinguished all its interests in the mortgages, nullifying the plaintiff’s lien on the tails. The plaintiff argued that Ginnie Mae exceeded its statutory authority because there was no direct contract between Ginnie Mae and the plaintiff, and the plaintiff was a bank, not an issuer. However, the court held that the Guaranty Agreement between the issuer and Ginnie Mae satisfied the statutory requirement for a contract, and the plaintiff’s interests were derived from the issuer’s interests.
