Morgan Stanley must review foreclosures that took place in 2009 and 2010 and reimburse borrowers who were victims of its illegal foreclosure practices -- or so the Fed says.
The Fed issued a consent order against Morgan Stanley "to address a pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing" at its subsidiary, Saxon Mortgage Services.
Saxon started more than 60,000 foreclosures from January 2009 through December 2010. The Fed has ordered Morgan Stanley to hire an independent consultant to review foreclosures that took place during that period. The company has 45 days to hire the consultant. It's not clear how long the review will take but once completed, Stanley must send the report to the Fed along with an action plan that will include reimbursing borrowers who were charged excessive fees during the foreclosure process.
This order is similar to what other large servicers have received. But will it really work? It remains to be seen, but I have yet to meet a borrower who got reimbursed in one of these cases.
Saxon was the 34th-largest mortgage servicer in the United States. It sold most of its assets this week to Ocwen Financial, and it will stop servicing loans.
But Morgan Stanley won't get rid of its problems by selling the business, the Fed says.
The company remains on the hook for its "unsafe" and "unsound banking practices," according to the consent order.
Morgan Stanley "allegedly" filed affidavits in court asserting ownership of the mortgage note, amount owed on the mortgage and fees charged to the borrower without properly verifying the information -- a practice known as robosigning.
Stanley also is accused of not hiring enough staff to properly handle the increased volume of delinquent mortgages and foreclosures and didn't have adequate audits, training and oversight of the foreclosure process. The list goes on, but it's much of the same of what you've already heard about other mortgage servicers.
So what happens now? The consultant will review these cases and look for flaws, including potential cases where the borrower lost the home to foreclosure while working on a loan modification with the lender.
Once Morgan Stanley submits the report with the results to Fed, we'll know more about a supposed plan, which according to the consent order will "remediate" the errors and reimburse borrowers for "any impermissible" or "unreasonable fees."
And while you wait, please follow me on Twitter @Polyanad