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Morgan Stanley division reaches settlement with Nevada attorney general

A division of investment banker Morgan Stanley on Tuesday agreed to a settlement with the state attorney general that would end an investigation into the firm’s alleged deceptive mortgage lending and securitization practices in Nevada.

Morgan Stanley Mortgage Capital Holdings LLC will pay as much as $40 million to provide relief to 600 to 700 consumers. The company agreed to adjust interest rates for some borrowers and to pay $7.2 million to prevent mortgage fraud and foreclosures.

"We are pleased to have resolved this matter in a way that benefits Nevada homeowners," Mary Claire Delaney, executive director of corporate communications for Morgan Stanley, said in a statement.

In an "assurance of discontinuance" settlement filed in Clark County District Court in Las Vegas, Morgan Stanley Mortgage Capital Holdings neither admitted nor denied any wrongdoing.

Nevada Attorney General Catherine Cortez Masto’s investigation centered on potential misrepresentation by lenders, including New Century Financial Corp., to consumers who took out subprime loans that were bought and securitized by Morgan Stanley.

According to the 12-page settlement, from 2004 to 2007 Morgan Stanley Mortgage Capital Holdings provided credit to New Century and other "originators of subprime loans and purchased and sold in securitizations subprime loans."

The investigation looked into whether lenders deceived consumers about the interest rates and payments on their loans, the appraised value of their properties and potential payment shock when the initial teaser rate expired.

"Morgan Stanley’s deceptive practices hurt Nevada homeowners and played a role in our economy’s decline," 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."

Masto’s office also examined the extent to which Morgan Stanley was aware of these subprime lenders; allegedly deceptive practices through its due diligence process and whether the firm substantially assisted these lenders by financing and purchasing their loans.

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893.

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