Morgan Stanley
(
MS
) is facing the Federal Reserve's fury. According to a Reuters
report, the Fed plans to fine Morgan Stanley on grounds of
misconduct and negligence in handling foreclosures by one of its
mortgage servicing units.
The mortgage servicing unit in question is Saxon Mortgage
Services Inc. While Morgan Stanley agreed to sell this unit to
Ocwen Financial Corp in October 2011 and closed the deal recently,
the Fed pointed at this unit's behavior with respect to
foreclosures between 2009 and 2010.
According to Fed allegations, this particular unit of Morgan
Stanley completed foreclosures without properly verifying the
documents. Moreover, according to Fed, the company was also in
dearth of adequate staff and resources for handling an increased
flow of foreclosures during that period.
While Fed has not revealed the amount of damages that it is
seeking from Morgan Stanley, it has ordered a probe into the
foreclosure practices during that period so as to ensure that
borrowers did not have to abandon their homes for improper
documentation. However, if such cases appear where borrowers were
wrongly forced to lose their homes, the company will have to
reimburse their losses properly.
The foreclosure mess hit the headlines in the past few years.
Faulty foreclosure practices adopted by the U.S. banks were brought
to the forefront and many lenders were accused of using
'robo-signers'. This is a practice of signing hundreds of documents
without any verification of decisive information.
In October 2010,
JPMorgan Chase & Co.
(
JPM
),
Bank of America Corporation
(
BAC
) and Ally Financial had to temporarily suspend foreclosures across
the country. A nationwide probe was launched by U.S. bank
regulators and a task force of attorneys general of all 50 states.
In February, the five large U.S. banks - JPMorgan, Bank of America,
Citigroup Inc.
(
C
), Ally Financial Inc. and
Wells Fargo & Company
(
WFC
) - accused of faulty foreclosure practices, finally reached a $25
billion settlement deal.
We believe such steps by the regulators and the banks will
provide relief to the distressed homeowners and will also instill
confidence in the business and revive the drooping housing market.
Notably, the housing market is bearing the brunt of the foreclosure
mess and dropping home prices and this in turn has impacted the
overall economic scenario and led to a slower growth rate.
Morgan Stanley shares maintain a Zacks #3 Rank, which translates
into a short-term Hold recommendation.
BANK OF AMER CP (
BAC
): Free Stock Analysis Report
CITIGROUP INC (
C
): Free Stock Analysis Report
JPMORGAN CHASE (
JPM
): Free Stock Analysis Report
MORGAN STANLEY (
MS
): Free Stock Analysis Report
WELLS FARGO-NEW (
WFC
): Free Stock Analysis Report
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