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Federal Reserve probes Morgan Stanley for illegal foreclosures

As Morgan Stanley takes action to wind down their mortgage servicing operations, the Federal Reserve today announced they are launching a probe of mishandled documents and wrongful foreclosures by subsidiary, Saxon Mortgage which sold today to Ocwen Financial.

Consent Order against Morgan Stanley

The Federal Reserve Board today announced a Consent Order1 against Morgan Stanley and is seeking financial damages for what the agency is calling a “pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing at its subsidiary, Saxon Mortgage Services, Inc.” which until yesterday was the 34th largest mortgage servicer in America.

On April 2, 2012, Morgan Stanley sold a large portion of the assets of Saxon to Ocwen Financial Corporation for $59.3 million, and has taken other various actions to end their residential mortgage servicing.

The Fed’s Consent Order forces Morgan Stanley to retain an independent consultant dedicated to reviewing foreclosures initiated by Saxon between 2009 and 2010. In a statement2, the Fed said that the review “is intended to 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.”

The review will be similar to those that the large mortgage servicers are currently undergoing that consented to enforcement actions brought in 2011 which resulted in the historic $25 billion mortgage settlement3.

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Probing an understaffed servicer

The probe will be seeking any mishandled documents to determine which (if any) borrowers wrongfully lost their home due to improper documentation. The Fed notes that Saxon lacked the resources and staff to handle increased foreclosure volume and foreclosures were completed “without always confirming that documentation of ownership was in order at the appropriate time.”

Financial penalties are deemed “appropriate” by the Fed, but the amount has yet to be disclosed, and will accompany corrective actions, which Morgan Stanley has acknowledged they are responsible for.

According to the Fed, “If Morgan Stanley re-enters the mortgage servicing business while the Consent Order is in effect, it will be required to implement enhanced corporate governance, risk-management, compliance, borrower communication, servicing, and foreclosure practices comparable to what the mortgage servicers subject to the 2011 enforcement actions were required to implement.”

1Consent order definition
2Federal Reserve statement
3Mortgage settlement breakdown

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Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

13 Comments

13 Comments

  1. Michael Gibbons

    May 10, 2012 at 6:32 pm

    Didnt the Saxons also pillage France? Bastards!

  2. Michael Gibbons

    May 10, 2012 at 6:32 pm

    You still mad about my font rant?

  3. AgentGenius

    May 10, 2012 at 6:32 pm

    no, it’s not my department 😀

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