Case Study

RMBS Litigation Analysis

Due to Oakleaf’s strong reputation for delivering complex data and analytics projects in the Financial Services and Regulatory industry, the company has been retained by counsel for various plaintiffs to offer an opinion regarding losses incurred by the plaintiffs in connection with their purchase of Residential Mortgage-backed Securities (RMBS) certificates. 

 Starting in 2005, the plaintiffs had invested over $4 billion in RMBS certificates and had lost approximately $1.6 billion as of August 31, 2016. The project entailed providing data, analytics, and subject matter expertise for end-to-end litigation expert services, including performing loss analysis and understanding the Pooling and Servicing Agreements (PSAs). PSAs are essentially a contract that governs the rights and obligations of multiple parties, including the plaintiffs and defendants involved in the transaction. This effort included: building a “unique-to-each” transaction cashflow model per the PSA; collecting monthly collateral performance and bond administration data for the past 12 years; building a Monte Carlo Alternate Scenario Simulation Engine; responding to interrogatories; formulating depositions, and providing expert affidavits and authoritative declarations on subject matter and expert testimony at trial.

Approach

Oakleaf invested in a strategic plan to support potential legal outcomes from the nation’s 2007 housing crisis. This plan required the accumulation of subject matter expertise for financial markets and RMBS securities by understanding PSAs and analyzing RMBS Trustee Remittance Reports and RMBS Collateral Performance Data. As part of this process, using its Financial Data and Analytics Execution Framework and Agile methodology, Oakleaf developed over 350 complex cashflow models per terms of the PSA. Once developed and validated, these models were used to simulate alternate scenarios using statistical modeling.

These models were developed in adherence with the Client’s internal IT policies and standards, including the security policy and SDLC standards. The cashflow models automated the cashflow business rules from the PSAs and were tailored to support different types of deal structures, loan groups, and number of bonds in a securitization. These models also support an unlimited number of permutations of deal characteristics.

In addition to building models to simulate alternate scenarios and perform data analytics, Oakleaf developed graphics and visual displays as part of the expert report and demonstratives in support of trial and legal pleadings. Oakleaf achieved the mandatory requirement to convey the impact of the sensitivity analysis in less than five minutes.

Once the models were developed, Oakleaf performed end-to-end System Integration Testing (SIT) and User Acceptance Testing (UAT) for each model by loading input (collateral) data, executing the model, and finally validating the Oakleaf model output with industry standard INTEX models. This development and testing of models were performed as an in-house model development, testing, and production environment to manage version control. 

Result

  • Oakleaf responded to a void in the legal industry for rapid calculation of damages and sensitivity analysis to meet short court deadlines and changing legal strategies. This allowed the law firms to run and present multiple damages scenarios which previously were unattainable. 
  • After determining that the Client needed models that could be rapidly executed using changing assumptions, Oakleaf identified all cashflow model assumptions that could be changed and made them configurable. This allowed Oakleaf to quickly execute various sensitivity analyses upon the Client’s request and deliver results based on strict court deadlines. 
  • Given that the litigation effort consisted of continual changing requirements (i.e. legal strategy), Oakleaf utilized its Financial Data and Analytics Execution Framework to ensure that model results were accurate, complete and court trial worthy. All models that Oakleaf built were designed to, and have withstood, rebuttal during court proceedings. 

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