According to the statement by Martha Coakley, the Massachusetts attorney general, Morgan Stanley which funded subprime loans throughout the US, improperly loaned billions of dollars to New Century which then sold loans to unqualified borrowers in the state. Morgan Stanley also packaged these risky loans and sold them to big investors like pension funds.
Coakley said that the settlement is ‘unprecedented’ and added that the amount would be divided between homeowners, taxpayers and state pension funds. Apart from this Morgan Stanley is also forced to overhaul parts of its lending practices by requiring more disclosure and demanding that the company stop funding "unfair subprime loans in Massachusetts," Coakley said.
Under the terms of the settlement Morgan Stanley will pay $58 million to affected Massachusetts borrowers and $23 million will go into an independent fund which will then cover the losses suffered by the Massachusetts Pension Reserves investment Trust and the Massachusetts Municipal Depository Trust funds. The state's taxpayers will receive $19.5 million, and $2 million will go to nonprofit groups that work with victims of subprime foreclosure in the state.
Massachusetts did not sue Morgan Stanley when it launched its probe. Under terms of the settlement, Morgan Stanley admitted to no wrongdoing.
"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 in a news conference on Thursday.
She said that her investigation into unfair lending practices is continuing and that Morgan Stanley will provide information and materials needed by the office's investigators.
