Washington, DC (LoanSafe.org) - Attorney General Peter Nickles announced today that his office has entered into an agreement with Morgan Stanley & Company, a New York investment banking firm, that resolves an investigation into Morgan Stanley’s mortgage warehouse financing practices relating to subprime home loans in the District from 2004 to 2007.
Morgan Stanley, while denying that its business practices violated the District’s consumer protection laws in any way, has nevertheless agreed to a settlement that will resolve the investigation and give District residents some assistance with homeowner issues.
It is a violation of the District’s consumer protection laws for a lender to make a home loan to a borrower when the lender knows that there is no reasonable probability that the borrower will be able to repay the loan in full accordance with its terms. Loans made in such situations are sometimes referred to as “predatory home loans.”
Although Morgan Stanley did not make loans directly to homeowners, it provided backup financing, known as “warehouse financing,” that enabled subprime lenders to make home loans. The attorney general’s investigation, initiated in 2007, sought to determine whether Morgan Stanley provided warehouse financing with knowledge that such funding would enable subprime lenders to engage in predatory home loan practices in violation of District law.
Because of improper practices engaged in by subprime home loan mortgage lenders during the subject period, compounded by the severe downturn in the housing market, many borrowers having difficulty making payments are unable to refinance their loans and now face foreclosure and other distress related to these subprime loans.
“We certainly appreciate the full cooperation that Morgan Stanley has shown us throughout the course of this investigation and are quite pleased that we were able to reach a voluntary resolution on these terms,” Attorney General Nickles said.
Pursuant to the terms of the agreement, Morgan Stanley will provide the District with $500,000 to be used to fund services for D.C. residents relating to home mortgage foreclosures. In addition, Morgan Stanley will pay $100,000 into the District of Columbia Consumer Protection Fund, which is used for consumer protection enforcement and education activities.
