Breaking: Fed Spanks Morgan Stanley

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If Morgan Stanley (NYSE:MS) thought selling off its Saxon Mortgage Servicing unit would be enough to escape potential investigative trouble, it was wrong. The Federal Reserve ordered the company on Tuesday morning to review foreclosures conducted by the unit and compensate affected borrowers.

On Tuesday, the Fed sent a consent order to ensure the company “provide[s] remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process.” On Monday, Morgan Stanley had finished the sale of the unit to Ocwen Financial (NYSE:OCN).

Residential mortgage loans were at the center of the financial crisis. As the crisis deepened, financial institutions tried to quickly offload these mortgage loans and asset backed-securities. According to Fed documents, Saxon initiated at least 60,313 foreclosures from the beginning of 2009 to the end of 2010. The Fed has now ruled Morgan Stanley took part in “unsafe or unsound banking practices” and deserves “monetary sanctions.”

Goldman Sachs (NYSE:GS) received a similar consent order last year even after it sold its Litton Loan Servicing unit to Ocwen, the same company acquiring Saxon. The investigations also include Bank of America (NYSE:BAC), Citi (NYSE:C), Ally Financial, HSBC (NYSE:HBC), JPMorgan (NYSE:JPM), MetLife (NYSE:MET), PNC (NYSE:PNC), Sun Trust (NYSE:STI), U.S. Bancorp (NYSE:USB), and Wells Fargo (NYSE:WFC).

To contact the reporter on this story: Aabha Rathee at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com

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