Coakley
BOSTON (Legal Newsline) - Massachusetts Attorney General Martha Coakley announced on Thursday that she has reached a $102 million settlement with a top investment company over alleged subprime loan violations.
According to the settlement, investment giant Morgan Stanley will provide relief to affected parties in the state, including $58 million to more than 1,000 Massachusetts homeowners, $23 million to the Massachusetts Pension Fund and $19.5 million in taxpayer money to the commonwealth's General Fund.
"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. Through today's action, we have secured significant relief to help keep hundreds of people in their homes and also recovered nearly $20 million for Massachusetts taxpayers."
Coakley alleges that Morgan Stanley offered funding to retail lenders that specialized in loans to less-qualified borrowers. The company provided billions of dollars to subprime lender New Century, which used the money to target lower-income borrowers, Coakley says. Many of these loans were found to be unsustainable because of the payment amounts or poor underwriting, Coakley says.
New Century repeatedly violated the Massachusetts Division of Banks' "borrower best interest" standard when it made subprime loans, and thus made loans that violated Massachusetts law, Coakley says.
As part of a state-wide probe, Coakley's office has secured more than $440 million in relief for investors and borrowers, ensured mortgage relief for more than 15,000 homeowners in Massachusetts and recovered more than $50 million in taxpayer funds for the commonwealth.
Morgan Stanley, under terms of the settlement, must also stop partaking in unfair subprime loan practices in the state, make additional disclosures to Massachusetts investors regarding its future subprime securitizations and provide documentation to the attorney general's office to aid in its on-going review of the industry.