Morgan Stanley may have sold off its mortgage servicing unit, but that did not stop the Federal Reserve from holding the company accountable for robo-signing and other improper foreclosure proceedings which occurred during 2009 and 2010. The Federal Reserve announced on April 3rd that it had issued a consent order against Morgan Stanley, just as it did last year against Goldman Sachs, requiring that Morgan Stanley “provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process.”
Morgan Stanley is required to engage an independent third party to review foreclosures conducted by its former mortgage subsidiary, Saxon Mortgage Services, Inc., and reimburse any homeowners who were improperly forced out of their homes. In addition, the Federal Reserve announced that Morgan Stanley will be subject to monetary penalties, and Morgan Stanley also acknowledged that it will be obligated to satisfy any civil money penalty that the Board of Governors may assess against Saxon Mortgage for its conduct during that time period.
On April 2, 2012, Morgan Stanley completed its sale of Saxon Mortgage’s assets to Ocwen Financial Corp for $59.3 million. According to the Federal Reserve, Saxon Mortgage was the 34th-largest residential loan servicer in the U.S., collecting payments on more than 225,000 home loans. In 2009 and 2010, Saxon pursued more than 60,000 mortgage foreclosures.
The Federal Reserve alleged that Saxon filed numerous foreclosure documents without personally verifying their contents, filed mortgage documents in court that were not properly notarized, and failed to devote sufficient resources to handle homeowners’ requests for assistance regarding their mortgage loans.
This enforcement action against Morgan Stanley comes on the heels of the settlement of mortgage foreclosure-abuse allegations between federal officials and the attorneys general of 49 states, and the nation’s five largest mortgage servicing firms, which was highly criticized for multiple reasons, not the least of which being the illusory nature of most of the $25 billion supposedly to be paid by the servicers.
Is the Federal Reserve’s announcement of the Morgan Stanley consent order without having first determined the penalties to be assessed an attempt to delay any controversy that yet another big bank got off the hook? We will await the Federal Reserve’s announcement of the monetary assessment in this matter.