A federal judge in New York has ruled in favor of Ocwen Financial Services and Wells Fargo, dismissing a case brought by a pension fund
The trustees of The United Food & Commercial Workers Union & Employers Midwest Pension Fund filed the original suit in 2018, seeking class action status. It argued Ocwen, Wells Fargo and a number of other entities, including several Altisource companies along with Front Yard Residential, committed misconduct with respect to the management of residential mortgages, which were in six trusts in which it invested. These claims had alleged the parties had breached a fiduciary duty under the Employee Retirement Income Security Act.
A previous 2019 ruling by Judge Vernon Broderick of the Federal District Court of the Southern District of New York winnowed down the defendants to just Ocwen and Wells Fargo. He also narrowed the issues in the case to whether mortgages constitute "plan assets" and thus subject to ERISA.
And that latter point turns on whether the securities, primarily assets of a real estate mortgage investment conduit or REMIC for short, are considered to be equity or debt. If it was determined to be equity and thus to be plan assets, ERISA would apply.
The original case looked to hold Ocwen as servicer for misconduct and Wells as master servicer for not overseeing the situation, with the pension fund referencing acts that led to
The 2018 original filing also came after a follow-up case that was
But Judge Broderick's 2019 ruling, cited in his latest decision, said, notwithstanding the NMS, mortgages did not constitute plan assets, although he left the matter open for further discovery on whether the securities qualified.
Case information found on the Structured Finance Association's website posted after the 2019 finding indicated the organization was looking to file an amicus brief.
If the judge was to rule in favor of the pension fund and treat these securities as equity, they would either be restricted under the terms of ERISA, or the transaction will need to comply with certain special Department of Labor rules
"If this matter is decided in favor of the plaintiffs, this would upend long-standing fundamental market assumptions and could have significant repercussions for the structured finance market," the SFA said at the time.
In March 2020, Ocwen and Wells filed for full summary judgment, while the pension fund sought partial summary judgment. The June 1 ruling addressed both of those motions.
"I previously decided that if the mortgages did not constitute 'plan assets' under a governing Department of Labor regulation, then plaintiffs could not proceed on their claims," Judge Broderick wrote in his order. "Because I find that no reasonable trier of fact could conclude that any of the mortgage-backed securities at issue here are plan assets within the meaning of ERISA, the moving defendants' motion for summary judgment is granted, and plaintiffs' motion for partial summary judgment is denied."
The judge then closed the case.
Wells Fargo declined to discuss the case. National Mortgage News reached out to the plaintiff's attorneys, Ocwen and the SFA, but has not yet received a response.
