Ginnie Mae challenges TCB expert’s testimony in HMBS case

Last month, TCB contended in a filing that the government’s assertion “that Ginnie Mae had statutory authority to extinguish TCB’s lien” on the collateral at issue is “incorrect.” Congress clearly laid out Ginnie Mae’s authority to pool backing securities that the company guarantees, the bank argued.

But the government instead says that TCB is missing out on details that are essential to the securitization of Home Equity Conversion Mortgage (HECM) loans into the HECM-backed Securities (HMBS) program.

“TCB’s misplaced focus on the treatment of mortgages after their inclusion in the HMBS program ignores that the procedure for securitizing HECM loans in accordance with the HMBS program starts with the full assignment, of all title and interest, of entire mortgages to GNMA under the guaranty agreement,” government attorneys argued.

Taking “absolute ownership” of the security is a “prerequisite to later steps of assigning derivative rights and interests as part of the HMBS program,” the government said. Ultimately, Ginnie Mae’s authority treats mortgages as “whole and indivisible” as soon as they are included in the HMBS program.

This is contrary to TCB’s stated assertion that “mortgages are divisible because it is a fundamental feature of the program that part of the mortgages are in the securitization pool and others (like the tails) are not,” as the bank seeks to recoup $28 million in collateral from the tails tied to loans originated by a now-bankrupt reverse mortgage lender.

TCB’s expert weighs in

On top of this, the government contends that the recently submitted expert testimony of Robert Conway — formerly of Finance of America (FOA), where he oversaw funding facilities, cash management and securitizations — is not appropriate to supplement the existing record.

“Mr. Conway’s opinion, seeking to overturn the court’s prior legal conclusions, is not proper expert opinion under the Federal Rules of Evidence,” the government contends. “Expert opinion is appropriate only when such opinion ‘will help the trier of fact to understand the evidence or to determine a fact at issue,’” citing precedent.

The government also says that opinions “on pure questions of law are not admissible, as such testimony would ‘undermine the judge’s power to decide the law,’” the government added.

Government attorneys added that Conway’s report is “too narrow in scope to be helpful,” saying his experience and report “are misaligned with the core issue,” the filing reads. “Mr. Conway fails to analyze the consequences of an issuer default and extinguishment, as happened in this case, but instead addresses how the HECM and HMBS programs operate in his view of the ordinary course, with a hypothetical solvent issuer and servicer.”

The backstory

TCB previously said that acceding to the government’s request for summary judgment would “enable Ginnie Mae to wipe out tens of millions of dollars of TCB’s assets when TCB did absolutely nothing wrong without even allowing TCB to put Ginnie Mae to its proof at trial,” the bank said in February. “This Court should deny Defendants’ summary judgment motion.”

This is the latest turn in a lawsuit that was initially filed in October 2023. TCB originally alleged that Ginnie Mae had “extinguished, in return for no consideration, TCB’s first priority lien on tens of millions of dollars in collateral stemming from the [FHA]-sponsored [HECM] program.”

TCB contends this was after Ginnie Mae allegedly turned to TCB to avoid “a catastrophic disruption of the HECM program.” In return for lending money to RMF, TCB alleged it received a first priority lien “on certain HECM collateral.” The bank described it as “critically important,” since without it, the only collateral TCB could rely on was a bankrupt company.

As of Monday afternoon, TCB had yet to file responses to the government’s latest filings.