Opinion ID: 4541112
Heading Depth: 3
Heading Rank: 2

Heading: Ginnie Mae’s Guaranty Agreements with FMC

Text: FMC is a privately held corporation based in California. J.A. 3. From 1975 to 2015, FMC was “an originator and servicer of [G]overnment-guaranteed home mortgages and an issuer” of MBS in Ginnie Mae’s MBS program. J.A. 24; see J.A. 27, 30. As of December 2014, FMC had serviced more than 31,000 mortgage loans, totaling more than $5.1 billion in unpaid principal, with “[m]ost” of those mortgages “securitized into [Ginnie Mae-guaranteed] [MBS].” J.A. 26. Pursuant to the MBS program, Ginnie Mae and FMC “entered into a great many Guaranty Agreements[.]” J.A. 30. The “terms of [these Guaranty Agreements] were prescribed by [Ginnie Mae]” and “substantially” the same, with Ginnie Mae’s Issuer Guide “at all times . . . an integral and material part of each Guaranty Agreement.” J.A. 30; see J.A. 60–74 (Guaranty Agreement excerpts), 107–254 (Issuer Guide excerpts); see also 12 U.S.C. § 1721(g)(1) (authorizing Ginnie Mae to guarantee MBS “upon such terms and conditions as it may deem appropriate”). In exchange for Ginnie Mae’s guaranty, FMC agreed to “conform with [Ginnie Mae’s] servicing standards, procedures, methods, and practices,” comply with “any applicable requirements contained in [the Ginnie Mae Issuer Guide],” and “establish and maintain books, files, and accounting records in accordance with [both].” J.A. 65; see 24 C.F.R. § 320.3(e) (providing “[e]thics and standards” for MBS issuers). The “cash flow from pooled mortgages,” including “principal and interest” payments, were considered “[c]ustodial [f]unds” that had to “be deposited and maintained in custodial accounts[.]” J.A. 236. FMC was required to “establish and maintain a Central [Principal & Interest] Custodial Account with a commercial bank” or other financial institution, to be “used exclusively for funds relating to Ginnie Mae MBS program mortgage pools.” J.A. 67; see J.A. 61. FMC was required to clear collection accounts “daily” into a custodial account, such as the Case: 19-1798 Document: 42 Page: 5 Filed: 06/12/2020 FIRST MORTGAGE CORPORATION v. UNITED STATES 5 Central Principal & Interest Custodial Account, “unless [FMC] use[d] [an Automated Clearing House] transfer, in which case the accounts [had to] be cleared every [fortyeight] hours.” J.A. 68. FMC was also required to “maintain delinquency rates” on mortgage pools “below [specified] threshold levels.” J.A. 252. To achieve this, FMC was allowed, per the Issuer Guide, “to repurchase a [mortgage] from a pool” if the mortgage had been “in a continuous period of default for [ninety] days or more,” then re-pool the mortgage and re-sell the security if the default was subsequently cured. J.A. 251–52; see J.A. 160–61 (providing mortgage status requirements for pooling). Under the Guaranty Agreements, FMC would be in “[i]mmediate default,” “if Ginnie Mae, in its sole discretion, determine[d]” that “[a]ny unauthorized use of Custodial Funds” or “[a]ny submission of false reports, statements, or data or any act of dishonesty or breach of fiduciary duty to Ginnie Mae related to the MBS program” had occurred. J.A. 72–73 (Guaranty Agreement Section 10.01). In the event of default, “Ginnie Mae [could], in its sole discretion, but [was] not required to, confer and negotiate with [FMC] with respect to remedying and correcting the default.” J.A. 73 (Guaranty Agreement Section 10.03). If an agreement was reached, it had to be “placed in written contractual form” as a supplement to the Guaranty Agreement. J.A. 73. In the absence of such an agreement, in “any event of default,” Ginnie Mae could “automatically effect and complete the extinguishment of any redemption, equitable, legal, or other right, title, or interest of [FMC] in the [pooled] [m]ortgages,” J.A. 73–74 (Guaranty Agreement Section 10.04), with all of FMC’s “authority and power . . . under [the Guaranty] Agreement, with respect to” any relevant securities and mortgages “automatically terminat[ing] and expir[ing],” J.A. 74 (Guaranty Agreement Section 10.05). Case: 19-1798 Document: 42 Page: 6 Filed: 06/12/2020 6 FIRST MORTGAGE CORPORATION v. UNITED STATES