The Federal Reserve Board (FRB) has announced a consent order against Morgan Stanley to address a pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing at its subsidiary, Saxon Mortgage Services Inc. Morgan Stanley sold a substantial portion of the assets of Saxon to Ocwen Financial Corporation on April 2, 2012, and has taken other actions to cease to conduct residential mortgage servicing. Prior to the completion of these actions, Saxon was the 34th largest mortgage servicer in the nation.
The consent order requires Morgan Stanley to retain an independent consultant to review foreclosure proceedings initiated by Saxon that were pending at any time in 2009 or 2010. 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 foreclosure review will be conducted in a manner consistent with the reviews currently underway at several large mortgage servicers that consented to enforcement actions brought by the banking agencies last year.
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.
As noted in the announcements relating to the 2011 enforcement actions, the Federal Reserve believes monetary sanctions are appropriate and plans to announce monetary penalties in these cases. The monetary penalties against Morgan Stanley will be in addition to the corrective actions that Morgan Stanley will be taking pursuant to the consent order action. Morgan Stanley has acknowledged that it will be responsible for satisfying any civil money penalty that the FRB's Board of Governors could have assessed against Saxon for its conduct.