MORGAN Stanley agreed yesterday to pay $102m (£68m) to end an investigation in Massachusetts into unfair lending practices.
Martha Coakley, the state’s attorney general, said Morgan Stanley, which funded subprime loans throughout the country, 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.
Calling the settlement “unprecedented,” Coakley said the amount would be divided between homeowners, taxpayers and state pension funds. The state is also forcing Morgan Stanley to change some of its lending practices by requiring more disclosure and demanding that the company stop funding “unfair subprime loans in Massachusetts,” Coakley said.
New York-based Morgan Stanley will pay $58m to affected Massachusetts borrowers and $23m 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 $19.5m, and $2m will go to nonprofit groups that work with victims of subprime foreclosure in the state.
Under the terms of the settlement, Morgan Stanley admitted to no wrongdoing. A Morgan Stanley spokeswoman said the bank was pleased to resolve the matter.