Fifth Circuit Affirms Ginnie Mae's Power to Extinguish Reverse Mortgage Liens

The Fifth Circuit Court of Appeals upheld a lower court ruling last week, affirming that Ginnie Mae may extinguish Texas Capital Bank’s lien on tail-pool balances tied to Home Equity Conversion Mortgages. The unanimous decision, issued on October 9, rejected the bank's arguments and clarified that Ginnie Mae’s extinguishment rights under its guaranty agreement reach third-party liens on HECM tails. This ruling directly impacts lenders' risk assessments in the Home Equity Conversion Mortgage-Backed Securities (HMBS) program.

How Texas Capital Bank’s lien arose in RMF’s bankruptcy

Texas Capital Bank provided more than $28 million in debtor-in-possession financing to Reverse Mortgage Funding during its 2022 bankruptcy. The financing was secured not by the initial securitized mortgage participations, but by the incremental balances accruing after securitization, known as tails. The bankruptcy court approved this structure, granting Texas Capital Bank first-priority liens on this tail collateral. Reverse Mortgage Funding was the nation’s fifth-largest reverse mortgage lender at the time of its collapse.

The legal clash over verbal assurances and statutory limits

Texas Capital Bank argued that Ginnie Mae had given oral assurances that its security interest in the tails would survive any extinguishment action. Ginnie Mae disputed this, pointing to written communications warning it lacked the authority to make such a commitment. The bank contended its lien was its own property interest, not merely an 'interest of the issuer,' and argued that unsecuritized tails fell outside the HMBS pool under industry practice. The Fifth Circuit rejected every argument. The judges wrote that 'the meaning of the statutory text does not turn on how the industry segments cash flows, and the statute dictates Ginnie Mae's extinguishment authority.' The court held the lien was 'wholly derivative' of RMF’s rights and that the Tail Agreement acknowledged the collateral remained subject to Ginnie Mae's interests.

RMF’s collapse and Ginnie Mae’s actions under the guaranty agreement

Reverse Mortgage Funding originated reverse mortgages and securitized them through government-backed pools under a guaranty agreement executed in July 2021. Under that agreement, RMF conveyed all title and interest in the securitized HECM loans to Ginnie Mae. RMF’s Chapter 11 bankruptcy filing in late 2022 triggered an immediate default. When negotiations to transfer RMF’s portfolio collapsed, Ginnie Mae terminated RMF and extinguished its rights in the underlying mortgages under Section 10.04 of the guaranty agreement. This action also extinguished Texas Capital Bank’s lien on the tails.

Industry implications for lenders in the HMBS market

The appellate ruling shows that liens on HMBS-related collateral can be treated as derivative of the issuer’s interests. They are subject to extinguishment when Ginnie Mae exercises its contractual remedies after a default. Funding providers lending against reverse mortgage servicing or tail cash flows must now underwrite the risk tied to Ginnie Mae’s unilateral power. Under these scenarios, collateral can be eliminated even with a court-approved, first-priority lien. The tails include additional borrower draws, interest accruals, insurance premiums, and other charges that build on reverse mortgages over time.

Texas Capital Bank sued Ginnie Mae in October 2023, alleging it violated the Administrative Procedure Act and extinguished its first-priority lien. In April 2025, Judge Matthew Kacsmaryk of the U.S. District Court for the Northern District of Texas ruled in favor of Ginnie Mae, writing that Congress granted extinguishment power over mortgages without consideration for tail pools. Texas Capital Bank appealed that loss. A representative for Texas Capital Bank said: "it had no comment at this time about the Fifth Circuit’s decision." The bank could ask for a reconsideration by the panel or a rehearing before the full Fifth Circuit.