Inflated Fees, Force-Placed Insurance, Robosigning Among MBS Investor Concerns In Suit Demanding Bankster Accounting Over Loan Servicing Costs

In New York City, Reuters reports:

• The Knights of Columbus, a 129-year-old Catholic charitable organization, is suing Bank of New York Mellon to obtain information about residential mortgage loans the former lending giant Countrywide funneled into some of the Knights' investments.
• The Knights, who have a $17-billion investment portfolio, invested in two residential-mortgage-backed security trusts. The organization is questioning how Countrywide handled foreclosures as the "master servicer" of the loans, according to the complaint filed Thursday in New York Supreme Court in Manhattan. BNY Mellon is the trustee.
• The complaint pointed to "recent revelations" that Countrywide may have been "acting for its own benefit rather than for the benefit of investors," and thereby "damaging the borrowers" whose loans make up the trusts.
• Kevin Heine, a spokesman for BNY Mellon, said, "The complaint does not assert any claims against BNY Mellon or seek damages. The complaint merely seeks an accounting."

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• The complaint says courts around the country have responded to the loan servicers' "notoriously flawed paperwork" by instituting new procedures, such as allowing the courts to pass on the cost of scrutinizing the documentation to the foreclosing firms.
• The Knights are requesting an accounting of the "extra fees and costs associated with robo-signing," to assure that those costs are borne by the loan servicers and not passed on to the beneficiaries of the trusts.
• The complaint also cites problems with Bank of America failing to promptly pursue valid foreclosures or dispose of real-estate-owned properties, practices that can increase the severity of losses associated with defaulted loans, according to the Knights' complaint. The complaint requests an accounting of these losses as well.(1)

For the story, see Knights of Columbus sue for Countrywide loan information.

For the lawsuit, see Knights of Columbus v. The Bank of New York Mellon, New York Supreme Court, New York County, No. 651442-2011.

Go here for links to other filed court documents.

(1) Paragraph 1 of the lawsuit summarizes the complaint:

• This action requests the Court to order an immediate accounting of two trusts known as CWALT 2005-6CB and CWALT 2006-6CB (the “Trusts”). The Trusts hold residential mortgage loans for the benefit of investors such as Plaintiff.
  
  An accounting is required because one or more of the Trust administrators have:
  
  (1) been examined by the Office of Comptroller of the Currency, the Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and the Federal Reserve Board, which “found critical deficiencies and shortcomings in foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third party law firms and vendors”;
  
  (2) been accused by the City of Buffalo, among others, for failing to properly care for and dispose of unoccupied properties, contributing to the deterioration of neighborhoods and increasing losses to the Trusts’ beneficiaries;
  
  (3) been found by the Office of the Comptroller of the Currency to have “engaged in unsafe or unsound banking practices” “[i]n connection with certain foreclosures of loans in its residential mortgage servicing portfolio”, which is subjecting each Trust to unknown costs and expenses;
  
  (4) been accused by the Federal Trade Commission of engaging in a deliberate strategy to “mark up” the actual cost of services that are ultimately paid by each Trust;
  
  (5) been exposed by the AMERICAN BANKER for using affiliates to place on homes insurance costing up to ten times the price of regular policies, which premiums are ultimately charged to the beneficiaries of each Trust; and
  
  (6) had a court find that a practice that an employee of a Trust administrator testified under oath was “customary” precluded a similar trust from enforcing its rights under a mortgage.

For the City of Buffalo accusations, see City of Buffalo v. ABN Amro Mortgage Group Inc., et al.

For the American Banker stories, see

• Ties to Insurers Could Land Mortgage Servicers in More Trouble (Force-placed policies impose costs on both homeowner, investor),
• Losses from Force-Placed Insurance Are Beginning to Rankle Investors,
• New Questions about Banks' Force-Placed Insurance Deals (QBE, carrier used by Wells Fargo and SunTrust, avoids oversight through 'surplus lines' structure).