DS News

50 INVESTORS REVIVE SUIT AGAINST U.S. BANK IN STATE COURT OVER $743 BILLION WORTH OF RMBS A group of dozens of investors, led by BlackRock, Inc., revived a lawsuit in a New York state court that was dismissed in a federal court last month, accusing U.S. Bank of failing in its duties as trustee for more than $743 billion worth of mortgage-backed securities. Last month, U.S. District Judge Katherine Forrest in Manhattan dismissed claims by a group of institutional investors that included BlackRock Inc., Allianz SE's Pacific Investment Management Co., and TIAA- CREF; claiming U.S. Bank was responsible for 843 toxic mortgage-backed securities totaling about $778 billion in collateral. Pursuant to a ruling from the Second Circuit Court in December 2014, Forrest ruled the claims were not pleaded correctly on 33 of the trusts and the remaining 810 trusts did not fall under federal jurisdiction. e claims that were revived in the state court involved 794 private-label, residential, mortgage-backed securities that were securitized during a three-year period immediately prior to the financial crisis (2004 to 2007). According to reports, at the time of securitization, the trusts were worth about $743.8 billion. e investors are accusing the Minneapolis-based bank, as a trustee for the securities, of ignoring defects in the loans and failing to take action, which subsequently caused investors to lose billions of dollars in the aftermath of the crisis. e suit was originally filed in the New York state court in June 2014, but it was voluntarily dismissed when it was filed in the federal court in New York five months later. An attorney for BlackRock declined to comment on the complaint, as did a spokesman for U.S. Bank, when DS News reached them by email. A similar suit filed by BlackRock Inc., Allianz SE's Pacific Investment Management Co., and TIAA-CREF in June 2014 claimed HSBC Holdings breached its duties as the trustee in 283 trusts, causing more than $34 billion in losses when the financial crisis hit in 2008. Earlier in June, Judge Shira Sheindlin of the U.S. District Court for the Southern District of Manhattan rejected HSBC's attempt to have the suit dismissed, saying in her ruling it was "plausible" to infer HSBC knew about the breaches. S&P DOWNGRADES OCWEN'S RATINGS TO BELOW AVERAGE Just two weeks after being upgraded by Moody's Investor Service and being placed on Standard & Poor (S&P)'s CreditWatch list for a downgrade, S&P cut Ocwen Financial's ratings for residential mortgage prime, subprime, special, and subordinate-lien from Aver- age to Below Average. S&P said it believed "regulatory and investor scru- tiny and/or actions" had af- fected Ocwen's operations. Ocwen experienced a tumultuous last year that included a multi- million-dollar settlement over alleged servicing violations, a formal notice filed by major inves- tors claiming they lost $1 billion as a result of alleged servicing infractions by Ocwen, ratings downgrades by Moody's in January and Fitch in February, and the threat of being de-listed from the New York Stock Exchange for the late filing of its 2014 10-K financial report. "We are disappointed with Standard and Poor's decision," an Ocwen spokesman said to DS News. "eir conclusions do not reflect the significant progress Ocwen has made in resolving past regulatory concerns, enhancing our risk, compliance, and in- ternal audit functions, and strengthening the company's financial condition." e Atlanta-based servicer made many improvements this year, however. One of the reasons Ocwen expressed surprise and disappoint- ment at S&P's decision to downgrade its rankings was the recognition the servicer received from Moody's earlier this month, which were prompted largely by sales of nearly $100 billion in agency mortgage servicing rights portfolios this year. Moody's upgraded Ocwen's Corporate Family Rating and the Senior Secured Bank Credit Facility from B3 to B2, the Senior Unsecured Debt from Caa1 to B3, and all ratings were given a "stable" outlook. "Execution on sales of a portion of our Fannie Mae and Freddie Mac servicing portfolios has resulted in increased liquidity, reduced corporate leverage and a simplified operating structure," Ocwen said. "We are pleased that Moody's has upgraded our Corporate Family Rating, Senior Secured Bank Credit Facility rating, and Senior Unsecured Debt rating. We are also pleased to see that Moody's has changed its outlook for all of these ratings to stable. Ocwen also notes that this past Monday (June 15, 2015), Moody's confirmed its servicer quality assessments of Ocwen as a primary servicer of subprime residential mortgage loans as a special servicer of residential mort- gage loans, and that Moody's announced that its servicer quality assessments of Ocwen are no longer on review for downgrade due to the progress Ocwen has made resolving its regulatory issues, integrating previously acquired servicing portfolios and platforms, and enhancing oversight of its servicing operations." is past year, Ocwen made continued in- vestments in Risk and Compliance Management Systems, which includes the firm's internal audit group. Independent monitor Joseph A. Smith Jr., who is overseeing Ocwen's compliance with the 2012 National Mortgage Settlement, launched an investigation of Ocwen's internal audit group in May 2014; in May 2015, Smith noted the improvements of that group in his report. "With the changing environment and increased focus on compliance, our internal audit function has increased the breadth and depth of its audit scope," Ocwen said. "Ocwen would also highlight its conservative approach to flagging certain audit findings as higher risk, which is consistent with its historical practice. Management of Ocwen believes it has addressed the higher risk audit issues and currently does not believe that any of the identified higher risk audit findings pose a material financial risk to the Company." "With the changing environment and increased focus on compliance, our internal audit function has increased the breadth and depth of its audit scope."

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