The Fifth Circuit Court of Appeals last week upheld a lower court’s decision in Texas Capital Bank (TCB)’s lawsuit against Ginnie Mae. The decision paves the way for the government-owned company to extinguish TCB’s lien on tail-pool balances tied to Home Equity Conversion Mortgages (HECMs) it acquired after the 2022 bankruptcy of Reverse Mortgage Funding (RMF).
The legal proceedings between TCB and the federal government date back to October 2023, when the bank sued Ginnie Mae, alleging it “extinguished, in return for no consideration, TCB’s first priority lien on tens of millions of dollars in collateral” tied to the HECM program.
A representative for Texas Capital Bank told HousingWire‘s Reverse Mortgage Daily (RMD) that it had no comment at this time about the Fifth Circuit’s decision. Ginnie Mae did not immediately respond to RMD’s request.
In April 2025, presiding Judge Matthew Kacsmaryk of the U.S. District Court for the Northern District of Texas ruled in favor of Ginnie Mae. In his decision, he wrote that “Congress granted extinguishment power over mortgages” without consideration for tail pools, which do not include new loans, but do represent new amounts lent.
TCB formally filed an appeal a few months later. A spokesperson for the bank said at the time that “the entire industry should be alarmed at this ruling and the government’s unlawful seizure of collateral. The victims of Ginnie Mae’s unlawful action will be the seniors who rely on the reverse mortgage program to pay basic expenses.”
Roots in RMF bankruptcy
RMF was the nation’s fifth-largest reverse mortgage lender at the time of its collapse. It was an active participant in the HECM Mortgage-Backed Securities (HMBS) program and had entered into a 2021 guaranty agreement with Ginnie Mae.
Under that contract, RMF conveyed all title and interest in securitized HECM loans to Ginnie Mae, which then assigned back limited servicing and related rights. A key provision allowed Ginnie Mae, upon issuer default, to “automatically effect and complete the extinguishment” of any rights or interest of the issuer in the mortgages or related Ginnie Mae securities.
By eliminating RMF from the HMBS program and seizing its servicing portfolio, the bank argued that Ginnie Mae eliminated any interest that the bank had in the tails. It sought to explain why the tails were not part of the HMBS collateral governed by the original agreement to engage with RMF, but that effort was halted by Judge Kascmaryk’s lower-court ruling last year.
When RMF hit a liquidity crisis and filed for Chapter 11 bankruptcy in late 2022, that triggered an immediate default under the guaranty agreement. To keep RMF operating in bankruptcy, Texas Capital Bank provided more than $28 million in debtor-in-possession (DIP) financing.
That loan was secured not by the existing pooled HMBS participations, but by the incremental balances that would accrue on HECM loans after securitization — the additional borrower draws, interest and premiums known in the industry as tails.
The bankruptcy court approved the structure and granted first-priority liens to TCB on the tail collateral under a new financing agreement. TCB later argued that Ginnie Mae had given oral assurances that the bank’s security interest in the tails would remain in place even if Ginnie Mae terminated RMF and exercised its extinguishment rights.
Ginnie Mae later disputed that account and pointed to written communications warning that it lacked authority to make such a commitment.
What the latest ruling means
Last week’s ruling from the appeal court underscores that liens on HMBS-related collateral can be treated as derivative of the issuer’s interests and are subject to extinguishment when Ginnie Mae exercises its contractual remedies after default.
Funding providers that lend against reverse mortgage servicing or tail cash flows in the HMBS market will need to underwrite the risk tied to Ginnie Mae’s ability to exercise its extinguishment rights. Under these scenarios, their collateral can be eliminated, even with a court-approved, first-priority lien.
