Morgan Stanley agrees to settlement in mortgage probe

Related document Morgan Stanley's Nevada mortgage securitization settlement filed today

Investment banking giant Morgan Stanley has agreed to a settlement valued at up to $40 million to end a Nevada probe over allegedly deceptive mortgage lending and securitization practices, Attorney General Catherine Cortez Masto announced today.

The New York-based company, with assets of some $831 billion, was investigated by Cortez Masto’s office for its role in buying and selling to investors some 3,000 subprime mortgages in Nevada.

In a settlement filed in Clark County District Court, called an "Assurance of Discontinuance," Cortez Masto said the company’s Morgan Stanley Capital Holdings unit committed to improve practices to securitize Nevada mortgages, to refund and adjust interest rates for certain Nevada borrowers and to pay $7.2 million to prevent foreclosures and mortgage fraud in Nevada.

Overall, the settlement will provide relief valued at between $21 million to $40 million to 600 to 700 Nevada consumers, Cortez Masto’s office said.

In a statement today, Morgan Stanley said: "We are pleased to have resolved this matter in a way that benefits Nevada homeowners."

Morgan Stanley, according to Cortez Masto, was involved in an investigation of potential misrepresentations by such lenders as New Century Financial Corp.

"These include whether lenders deceived consumers about the actual interest rate and payments on their loans, the appraised value of their property and the potential payment shock when an initial teaser rate expired," Cortez Masto’s office said.

"The Nevada Attorney General also examined the extent to which Morgan Stanley was aware of these subprime lenders’ allegedly deceptive practices through its due diligence process and whether Morgan Stanley substantially assisted these lenders by financing and purchasing their loans. Morgan Stanley neither admits nor denies any wrongdoing,'' the statement from Cortez Masto's office said.

“Morgan Stanley’s deceptive practices hurt Nevada homeowners and played a role in our economy’s decline,” Cortez Masto said in a statement. “This is the first step in the right direction to protect consumers and put an end to this financial firm’s egregious behavior."

This is at least the third major company to be hit with court action by Cortez Masto in the past year over mortgage lending as foreclosures soared in the state during the recession.

Earlier, homebuilding giant Pulte Home Corp. agreed to pay $475,000 to settle a Cortez Masto probe over its lending practices during the economic boom, while Cortez Masto is still tangling with Bank of America in a much larger case charging it deceived consumers into believing they would receive loan modifications – and then foreclosed on them anyway.

Bank of America has denied those allegations.