Morgan Stanley has agreed to pay civil money penalties and conduct a review of 60,300 foreclosures conducted by its former servicing subsidiary, Saxon Mortgage Services, as part of an enforcement action by the Federal Reserve Board.
Fed examiners found a pattern of misconduct and negligence in Saxon's servicing and foreclosure practices during a special on-site review in late 2010.
Under a Fed consent order, the investment banking firm agreed to hire an independent consultant to review all foreclosure actions taken by Saxon in 2009 and 2010.
"The review is intended to provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures" or other foreclosure deficiencies, the Fed said.
The Fed released the consent order on Tuesday—one day after Morgan Stanley completed its sale of Saxon to Ocwen Financial Corp. The sale was announced last year.
Last September, the Fed slapped Goldman Sachs with a similar enforcement action when it completed the sale of Litton Loan Servicing to Ocwen, West Palm Beach, Fla.
The Fed will not determine the amount of the civil money penalties it will assess Morgan Stanley until the foreclosure review is completed.
"Morgan Stanley has acknowledged that it will be responsible for satisfying any civil money penalty that the Board of Governors could have assessed against Saxon for its conduct," the Fed said in a statement. A Morgan Stanley spokeswoman declined to comment on the Fed's action.
In recent testimony, Fed senior associate director Suzanne Killian said the Fed and the Office of the Comptroller of the Currency will issue joint guidance soon about the kind of payments and other corrective actions servicers must take to address specific types of financial injuries suffered by borrowers in the foreclosure process.