And the case isn't over – what comes next could hit the servicing industry even harder
A federal appeals court just ruled that mortgages in certain RMBS trusts are plan assets under federal retirement law – mortgage servicers, take note.
On March 26, 2026, the US Court of Appeals for the Second Circuit handed down a decision and it landed squarely on the mortgage servicing industry's doorstep. The short version: if a pension fund holds certain types of certificates in an RMBS trust, the mortgages sitting inside that trust may count as pension plan assets under federal retirement law. And if they do, the servicer handling those loans could owe fiduciary duties to the pension fund.
Here is how it happened. The trustees of the United Food and Commercial Workers Union and Employers Midwest Pension Fund sued Ocwen Financial Corporation and Wells Fargo Bank, N.A. over how the mortgage loans inside six RMBS trusts were serviced and overseen. The pension fund had invested in those trusts, and the trustees claimed Ocwen mismanaged the underlying loans, engaged in self-dealing, and generally failed to look out for investors. Wells Fargo, serving as master servicer on three of the trusts, was accused of not keeping Ocwen in check.
The pension fund's investments came in two flavors. Three of the trusts were structured as Delaware statutory trusts that issued notes under indenture agreements. The other three were New York law trusts classified as real estate mortgage investment conduits – REMICs – for tax purposes, and they issued regular-interest certificates. That structural difference turned out to matter a great deal.
The lower court had sided with Ocwen and Wells Fargo across the board, finding that none of the mortgages inside the trusts counted as pension plan assets. The Second Circuit saw it differently – at least in part.
For the indenture notes, the appeals court agreed with the lower court. Those notes looked like plain debt. They carried fixed interest rates, had maturity dates, and gave holders scheduled payments of principal and interest. Noteholders had no ownership stake in the trusts or the mortgage pools backing them. The trusts had issued separate certificates for that purpose, and those certificates sat below the notes in the payment hierarchy. The court acknowledged that the trusts were thinly capitalized and that repayment depended on how the mortgage pool performed, but it said those features amounted to ordinary credit risk – the kind every lender takes on. That is not enough to turn debt into equity under the federal retirement law framework.
The REMIC certificates told a different story. The court looked at the trust agreements and found that they were set up to benefit the certificateholders. The mortgage pools had been conveyed to a trustee to create a trust for the benefit of those holders. Collection accounts were maintained for their benefit. Under New York trust law, anyone with a right to receive a benefit from a trust holds a beneficial interest in it — and under the Department of Labor's regulations, a beneficial interest in a trust is an equity interest. Once it is equity, the look-through rule kicks in, and the mortgages inside the trust become pension plan assets.
That distinction between the two structures is the crux of the decision. Notes issued under indenture agreements did not trigger look-through treatment. Certificates issued by REMIC trusts did.
The court stopped short of deciding whether Ocwen actually acted as a fiduciary under federal retirement law. It sent that question back to the district court for the Southern District of New York, where the case will pick up again. If the lower court finds that Ocwen's servicing activities do qualify as fiduciary functions, it would mean mortgage servicers can be held to the fiduciary standards that federal retirement law imposes on those who control plan assets.
For anyone in the mortgage servicing business, this matters. The ruling does not change how loans are serviced day to day – not yet. But it opens a path for pension funds invested in REMIC trust certificates to argue that the servicer handling the underlying mortgages owes them fiduciary duties. That is a category of legal exposure the industry has not had to reckon with at this level before. The remand proceedings will determine just how far it extends. This one is worth watching.
