Morgan Stanley to Pay $102 Million in Subprime Accord

Morgan Stanley, the sixth-largest U.S. bank by assets, agreed to pay $102 million to settle claims by Massachusetts that the firm financed and securitized unfair residential loans, state Attorney General Martha Coakley said.

Of the $102 million, $58 million will be earmarked for more than 1,000 Massachusetts homeowners, with other funds set aside for the Massachusetts Pension Fund for investment losses and the commonwealth’s general fund, Coakley said today at a press conference in Boston.

“This has become an all-too-familiar pattern in which the deceptive practices of Wall Street devastated homeowners and investors, and ultimately contributed to the collapse of our economy,” Coakley said. “Our extensive investigation revealed that Morgan Stanley not only backed loans for homeowners that they should have known were destined to fail, they also caused additional damage in the subprime marketplace.”

The bank is barred from making unfair loans and will be required to make additional disclosures going forward, Coakley said.

“Morgan Stanley is pleased to resolve this matter in a way that will help many Massachusetts homeowners stay in their homes,” Jennifer Sala, a spokeswoman for the New York-based bank, said in an e-mailed statement.

New Century

Coakley claimed Morgan Stanley provided billions of dollars to subprime lender New Century, which used those funds to target low-income borrowers and lure them into loans that consumers predictably couldn’t afford to pay. The loans often were unsustainable, though they were profitable for the lenders, she said.

The settlement fund for Massachusetts homeowners will be overseen by an independent trustee, according to settlement papers filed in Massachusetts state court.

The bundling of the riskiest type of mortgages into securities played a role in turning the U.S. housing slump into a global recession as foreclosures deflated bond values and toppled Wall Street firms including Lehman Brothers Holdings Inc. The Massachusetts attorney general reached a $60 million settlement last year with Goldman Sachs Group Inc.

Morgan Stanley fell 77 cents, or 3 percent, to $24.26 in New York Stock Exchange composite trading.


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