Morgan Stanley to Pay $1.25B in Mortgage-Backed Securities Lawsuit by FHFA

Morgan Stanley (MS) will pay $1.25 billion to the Federal Housing Finance Agency to resolve the latter’s securities fraud lawsuit accusing the firm of selling mortgage bonds to Freddie Mac (FMCC) and Fannie Mae without apprising them of the risks. A lot of the loan involved in this MBS lawsuit against Morgan Stanley came from subprime lenders, such as IndyMac and New Century. The loans were packaged into bonds.

The brokerage firm, which sold $10.58 billion in mortgage-backed securities that were issued between September 2005 and September 2007, is the eighth financial firm to settle with FHFA over the more than $200 billion in securities that came with offering materials that purportedly misled the two government-backed lenders about the quality of the loans behind their investments. FHFA sued 18 financial institutions asking for unspecified damages in 2011.

To date, the government agency has collected about $9.1 billion. Recent settlers include Deutsche Bank AG (DB), which is paying $1.93 billion and JP Morgan Chase (JPM), which settled for $4 billion. Among those that have yet to settle with FHFA is Bank of America Corp. (BAC), which is being sued, along with two of its firms—Merrill Lynch & Co. (MER) and Countrywide Financial Corp.—for over more than $57.4 billion in securities. FHFA wants at least $6 billion from them.

Although Freddie and Fannie don’t issue loans directly, they buy mortgages from banks and then sell the securities to investors while giving them guarantees. The two of them also bought securities that were privately issued as investments during the housing boom.
Unfortunately, as mortgage losses went up, the US Treasury was forced to rescue them with over $150 billion in infusions.

Contact our MBS fraud lawyers at The SSEK Partners today and ask for your free case consultation to help you determine whether you have a securities case.

Morgan Stanley To Pay $1.25 Billion in Mortgage-Backed Case, The Wall Street Journal, February 4, 2014

Morgan Stanley Reaches $1.25 Billion Mortgage Settlement, NY Times, February 4, 2014

Federal Housing Finance Agency

More Blog Posts:
New Jersey Files Securities Lawsuit Against Credit Suisse Over $10B in MBS Sales, Stockbroker Fraud Blog, December 20, 2013

J.P. Morgan’s $13B Residential Mortgage-Backed Securities Deal with the DOJ Stumbles Into Obstacles, October 28, 2013

Goldman Sachs Must Contend with Proposed Class-Action CDO Lawsuit, Institutional Investor Securities Blog, January 22, 2014