The Federal Reserve on Tuesday ordered Morgan Stanley to review tens of thousands of mortgage foreclosures that may have been improperly filed by its former Saxon Mortgage Services subsidiary. (Perhaps not coincidentally, the nearly $60 million sale of Saxon Mortgage to Ocwen Financial, announced last fall, was finalized on Monday, effectively ending Morgan Stanley’s mortgage servicing activities.) During 2009 and 2010, Saxon initiated foreclosure actions on more than 60,000 mortgages, or about a quarter of the 225,000-plus mortgage loans in its portfolio. Morgan Stanley must hire an independent consultant to review its foreclosure actions, correct errors, and reimburse affected borrowers, among other measures.
According to the Fed report, Saxon allegedly initiated foreclosure proceedings based on personal knowledge or a review of records, “when, in many cases, they were not.” The report also alleges that the company filed mortgage-related documents that were not properly notarized, failed to have adequate staff to handle the increased number of foreclosure actions, and failed to have proper internal controls and training. Morgan Stanley may be compelled to offer foreclosed homeowners repayment plans, loan modifications, short sales opportunities, or deeds-in-lieu-of foreclosure (a program recently implemented by Bank of America). It is believed that Morgan Stanley may also be levied millions in fines.
The Fed announcement comes on the heels of February’s $25 billion settlement between the US Justice Department and 49 states attorneys general and five of the largest mortgage servicers — Bank of America, Ally Financial, Citigroup, JPMorgan Chase, and Wells Fargo — over similar allegations of improper foreclosure procedures. Neither Morgan Stanley nor Saxon were included in that action.