News Dec 11, 2015 10:09 AM EST

Morgan Stanley in $225 million deal with U.S. regulator

By Staff Writer

Morgan Stanley will pay $225 million for settling claims that it sold faulty mortgage-backed securities that led to the collapse of credit unions during the financial crisis. National Credit Union Administration (NCUA) announced settlements pertaining to 2013 lawsuits against the bank in New York and Kansas federal courts. With the Morgan Stanley's settlement, the total amount that NCUA recovered from banks through lawsuits reached to $2.43 billion.

The deal with NCUA resolves claims over bank's RMBS practices. Morgan Stanley has agreed to settle the claims without admitting fault, according to Alexandria, Virginia-based regulator. NCUA has also filed lawsuits against other trustees, who allegedly failed to monitor loan services or require banks to buy back defective loans.

As per a report by CNBC, NCUA began filing lawsuits against bank's faulty practices recovering the amount from 2011 onwards. The total amount it recouped from lawsuits against banks reached to $2.43 billion, said the US regulator. It filed lawsuits against the banks, which allegedly sold securities backed by defective residential mortgages. 

NCUA Board Chairman Debbie Matz said in a statement that, "NCUA continues to pursue recoveries on behalf of the corporate credit unions against the financial firms we maintain contributed to the corporates' losses."

Morgan Stanley denied to provide further details about the latest development, as reported by Reuters. NCUA is pursuing similar litigation lawsuits against other banks such as Credit Suisse Group AG, Goldman Sachs Group and UBS AG. Bank of America Crop, Barclays Plc, Citigroup Inc and JPMorgan Chase & Co are the banks that settled lawsuits. 

During the market hype before the explosion of financial crisis in 2008, several property transactions were involved in defective residential mortgages. Many lawsuits by National Credit Union Administration targeted such allegedly sold securities backed by fraudulent mortgages. 

Bloomberg further reports that, NCUA announced similar settlements valuing $53 million with Wells Fargo & Co and $325 million worth claims with Barclays in October. The credit union-related settlements reached over $2 billion so far. Mark Lake, spokesperson at New York-based Morgan Stanley, denied to comment on the latest settlement. 

The lenders often gone beyond law during the property boom. Property analysts say that incomes mentioned in mortgage applications in ZIP codes with high rate of subprime lending, were much more than incomes reported in tax returns with the same ZIP codes during 2002 and 2005. It clearly states how fraudulent mortgage transactions were before the 2008 financial crisis. Corporate credit unions, which had to be seized by regulator after 2008 financial crisis, provided wholesale investment services to consumer credit union.  

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