Morgan Stanley to pay $1.25bn in mortgage bond settlement

by Ryan Smith05 Feb 2014
Morgan Stanley has agreed to pay $1.25bn to settle litigation over mortgage-backed securities.

The agreement settles a claim by the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac. Morgan Stanley was one of 18 financial institutions sued by the government in 2011 for selling Fannie and Freddie $196bn worth of mortgage-backed securities that went south when the housing market collapsed, according to an Associated Press report.

Fannie and Freddie teetered on the brink of insolvency in 2008, finally requiring a $187bn cash infusion from the government to stay afloat. The companies, which own or guarantee about half of all mortgages in the U.S., have since paid back nearly all that money.

Morgan Stanley’s settlement with the FHFA will mean the lender will be recording $150 million more in legal reserves, which will knock down its fourth-quarter earnings by about 5 cents per share, the AP reported.

The lender isn’t the first bank to settle with the FHFA over toxic mortgage bonds. In October, JPMorgan Chase agreed to pay $5.1bn. Deutsche Bank settled with the agency for $1.92bn in December, according to the AP.


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