We’ve seen a flurry of securities class actions settlements lately involving residential mortgage-backed securities (RMBS), holdovers from the financial crisis of 2007-2008. While there are some rather large RMBS settlements, identifying your eligibility and maximizing your recovery from claims filed in these settlements can be tricky. These settlements tend to be more complex than traditional class action settlements. The challenges of adequately addressing RMBS cases include:

1. The number of securities: Unlike the majority of securities litigation, where the class includes holders of relatively few equities or debt instruments, RMBS cases tend to include hundreds or even thousands of securities. Without scalable, specialized software designed to identify eligibility across so many securities, the process of assembling claims and confidently knowing you haven’t missed any transactions or pertinent information can be quite daunting.

2. Calculating Recognized Loss: In order to validate the accuracy of settlement checks received from an RMBS settlement, you must first calculate Recognized Loss (RL) independently from the claim administrator. However, RL calculations in RMBS cases are less straightforward than those in the average case. Typically, the analysis requires adjusting for differences in Current vs. Original Face Value (see below) using the realized, historical mortgage factors and in some instances, eliminating the effect of pay downs received while owning the relevant securities.

3. Original vs. current face value (and pay downs): Cash flows from residential mortgage-backed securities are different from many other fixed income instruments in that they tend to come in monthly installments over the life of the security, rather than in one large repayment at the time of maturity. As a result, the remaining face value of the security tends to decrease with time. For a system not designed to handle and interpret the discrepancy between the original and current face values, it can be very challenging to submit a proper claim and documentation in accordance with the specifications set by the administrator.

4. Gathering and interpreting the appropriate data into the claim: Claims administrators have refined the specifications defining the information they need from each claimant to determine the value of the claims they receive. As a result, there has been little consistency in the way historical transactions in residential mortgage-backed securities need to be presented to claims administrators in order to submit a claim that will be understood and accepted. This further supports the need to have a system capable of toggling back and forth between the current and original face value and of automatically calculating the value of paydowns based on those numbers.

About FRT

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Founded in 2008, Financial Recovery Technologies (FRT) is the leading technology-based services firm that helps the investment community identify eligibility, file claims and collect funds made available in securities and other class action settlements. Offering the most comprehensive range of claim filing and monitoring services available, we provide best-in-class eligibility analysis, disbursement auditing and client reporting, and deliver the highest level of accuracy, accountability and transparency available. For more information, go to www.frtservices.com.

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