October 09, 2023 | Premium Service | In this issue of The Institutional Risk Analyst, we update subscribers to our Premium Service on the latest developments at Texas Capital Bank (TCBI). Back in August, we told our readers that TCBI did not seem to be in any hurry to disclose the $40 million loss it took on the collapse of Reverse Mortgage Investment Trust (RMIT) and affiliates last November. The US Treasury now owns the RMIT portfolio.
TCBI has sued Ginnie Mae (GNMA) and HUD (2:23-cv-00156-Z-BR), alleging that GNMA President Alanna McCargo provided verbal guarantees to the bank for post-filing debtor-in-possession (DIP) financing. TCBI’s Madison Simm stated in a sworn affidavit: “President McCargo assured [TCB] that TCB would be able to look to the Collateral for repayment even if Ginnie Mae were to seize RMF’s MSRs.” Sadly, that was not the case.
Akiko Matsuda of the Wall Street Journal reported that “Texas Capital Bank said it was convinced by the U.S. government to loan $28 million in December to help a bankrupt reverse-mortgage company fund payments to elderly homeowners and avert a crisis in the reverse-mortgage industry.”
The trouble, of course, is that President McCargo has no power to commit the United States financially. More, McCargo should never have met with TCBI or the creditors of RMIT. HUD, and not private banks, have the legal obligation to advance cash to reverse mortgage borrowers in the event of an issuer default. Apparently McCargo did not know this and, more important, did not ask HUD's lawyers for advice.
McCargo, who has no background in business or finance, apparently did not understand her position as President of Ginnie Mae and has now created a legal mess for the Biden Administration. Rather than ask a private lender such as TCBI for cash to help elderly borrowers, for example, HUD itself should have advanced the cash to consumers. McCargo apparently did not understand this legal and operational reality.