The trustees of the United Food & Commercial Workers Union & Employers Midwest Pension Fund are suing mortgage loan provider Ocwen for allegedly failing to fulfill its fiduciary duties under the Employee Retirement Income Security Act (ERISA).
The lawsuit claims that Ocwen was motivated to increase home foreclosures because it profited more from mortgages in default or foreclosure than from performing mortgages. It said this was done not only to the detriment of the homeowners, but that is also hurt the pension fund, which had invested mortgage-backed securities (MBS).
“Ocwen abused the role of servicer, a role previously thought to be ministerial, to profit from the foreclosure crisis,” said the lawsuit. “Ocwen’s self-enrichment was at the expense of the plan and other benefit plans that invested in securitized mortgages.”
According to the plaintiffs, the company demonstrated unchecked control of the management and disposition of securitized mortgages, and was a fiduciary under ERISA to the benefit plans that invested in the MBSs.
“As a fiduciary to benefit plan investors in securitized mortgages, Ocwen owed those benefit plan investors a duty of diligence and undivided loyalty,” said the suit. “Instead, Ocwen consistently acted to increase its own profits to the detriment of investors.”
The suit goes on to say that Ocwen “sabotaged” mortgage modifications and otherwise “pushed struggling homeowners into needless default and foreclosure,” which it said greatly increased the plans’ losses.”
In response to lawsuit’s allegations, an Ocwen spokesman told CIO that the company “is reviewing this matter, and intends to defend itself vigorously.”
The suit also alleges that Ocwen charged illegal fees for late payments, partial payments, and bounced checks, and treated homeowners’ monthly payments as partial payment if the payment did not include those fees, a practice known as fee pyramiding.
“Ocwen charged excessive premiums for force-placed insurance and excessive charges for services associated with default and foreclosure, such as home inspections, appraisals, and maintenance and marketing of foreclosed homes,” said the suit. “Ocwen split profits with force-placed insurers, home warranty companies, and other vendors, or took commissions or other payments that are per se breaches of fiduciary duty.”
The suit cited a 1996 Department of Labor advisory opinion that stated that when a pension indirectly retains investment management services by investing in a pooled investment vehicle, such as MBSs, the assets of the vehicle are considered plan assets, and should be managed in accordance with the fiduciary rules of ERISA.
“Ocwen, as successor servicer, was contractually granted and has exercised sweeping discretionary control over the securitized mortgages held in the American Home trusts and, therefore, is a fiduciary to the benefit plans that invested in those securitizations,” said the suit. “Control of plan assets sufficient to pilfer or otherwise engage in self-dealing, as Ocwen has done, confers fiduciary status.”