The office of Nevada's attorney general has ended its investigation into Morgan Stanley Mortgage Capital Holdings' involvement with the securitization of subprime loans in the state. Attorney General Catherine Cortez Masto announced Tuesday that she has filed an ‘assurance of discontinuance’ requiring the firm to restructure certain loans and pay millions toward foreclosure relief efforts.
The settlement mandates that Morgan Stanley commit to certain securitization practices for Nevada mortgages, provide refunds and adjust interest rates for certain borrowers, and pay $7.2 million to prevent foreclosures and mortgage fraud in the state. The settlement will provide relief valued at between $21 million and $40 million to as many as 700 customers, according to a statement from Cortez Masto.
The attorney general's investigation, which was in relation to approximately 3,000 subprime loans, centered on potential misrepresentations by lenders, including New Century Financial Corp., to Nevada borrowers who took out loans that Morgan Stanley later bought and securitized. With the settlement, Morgan Stanley does not admit or deny any wrongdoing.
‘Morgan Stanley's deceptive practices hurt Nevada homeowners and played a role in our economy's decline,’ Cortez Masto said. ‘This is the first step in the right direction to protect consumers and put an end to this financial firm's egregious behavior.’
Going forward, Morgan Stanley will have to engage in a ‘reasonable review’ of loans prior to securitization to determine whether they comply with the state's deceptive Trade Practices Act. The settlement prohibits Morgan Stanley from securitizing loans in certain scenarios, such as if the firm believes a lender has not adequately disclosed teaser rates to borrowers.