Morgan Stanley, DOJ settle RMBS claims for $2.6B

February 18, 2016

WASHINGTON (2/18/16)--Morgan Stanley will pay a $2.6 billion penalty to resolve claims related to its marketing, sale and issuance of residential mortgage-backed securities (RMBS), the U.S. Department of Justice announced. Morgan Stanley previously reached an RMBS settlement with the National Credit Union Administration (NCUA) for $225 million in December 2015. The NCUA is not part of the $2.6 billion settlement.

The $2.6 billion settlement constitutes the largest component of the set of resolutions with Morgan Stanley entered by members of the RMBS Working Group, which have totaled roughly $5 billion.

As part of the agreement, Morgan Stanley acknowledged in writing that it failed to disclose critical information to prospective investors about the quality of the mortgage loans underlying its RMBS, and about its due diligence practices. Investors, including federally insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued by Morgan Stanley in 2006 and 2007.

The NCUA continues to pursue recoveries on behalf of failed corporate credit unions. Net proceeds from NCUA settlements are used to pay claims against the failed corporate credit unions, including those of the Temporary Corporate Credit Union Stabilization Fund.

Stabilization Fund recoveries reduce borrowings from the U.S. Treasury and eliminate the need for assessments to federally insured credit unions.