Judge admits expert testimony from TCB in case against Ginnie Mae

Earlier this month, government attorneys challenged the inclusion of the report on the record, contending that “the court should deny TCB’s implicit request for reconsideration” because the report was not “appropriate or useful.”

But Judge Matthew Kacsmaryk of the U.S. District Court for the Northern District of Texas did not agree with the government’s conclusion. He ruled that the submitted report “will enable the court to further understand how the reverse mortgage industry views the assets in question when considering the legal questions at issue,” according to a court filing reviewed by RMD.

The judge went on to detail instances in which it would be appropriate or inappropriate to supplement the existing record with such testimony. Based on precedent, Kacsmaryk said it would not be appropriate if the party seeking to add to the record did so without demonstrating the relevant circumstances.

Such an action is generally allowed when “background information” would assist in determining whether all relevant factors have been considered, he added. Supplemental information is permitted “when a case is so complex that a court needs more evidence to enable it to understand the issues clearly,” he said, again citing precedent. The information from Conway falls into this category, the judge ruled.

“While the administrative record may contain all the information the expert report discusses, the expert report fashions it in a format to aid the court’s understanding,” Kacsmaryk wrote. While legal interpretations should not be included, the information “can add perspective on how the statutory interpretation questions affect the case’s underlying facts.”

In the court filing to introduce Conway’s report, Texas Capital Bank contended that “‘unsecuritized tails,’ like those at issue here, ‘are distinct from pooled mortgages and not derivative of pooled mortgage participations,’” it said in February.

“(Conway) also discusses how TCB’s tail funding resulted directly in payments to HECM borrowers and the damages TCB has suffered from Ginnie Mae’s purported extinguishment of TCB’s property interest in the tails.”

The bank argued that the report should be considered by the court prior to a ruling on the government’s pending summary judgment motion, which TCB challenged in a separate filing last month.

That motion remains outstanding, but the government argued that it’s warranted since Kacsmaryk’s October 2024 ruling proved that Ginnie Mae “was within its rights to extinguish and terminate RMF and take absolute ownership of [the] mortgage portfolio,” government attorneys said.

They also argued that TCB “no longer has any remaining rights or interests in the property at issue in this case.” The October ruling proves “fatal to TCB’s two remaining counts” and entitles Ginnie Mae to summary judgment, the government argued.

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.

The lawsuit at the center of these events was initially filed in October 2023. TCB alleged in its original complaint that Ginnie Mae “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.”

This occurred, the bank argued, after Ginnie Mae allegedly turned to TCB for help to avoid “a catastrophic disruption of the HECM program.”

The bank stepped in, and in exchange for lending money to a bankrupt reverse mortgage lender and issuer, TCB said it received a first-priority lien “on certain HECM collateral.” TCB said this was “critically important,” since without it, the only collateral it could rely on was a bankrupt company.