Mass. wins $102 million in subprime loan case

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Mass. wins $102 million in subprime loan case
By Beth Healy
Globe Staff / June 25, 2010

Attorney General Martha Coakley has won a $102 million settlement from Wall Street’s Morgan Stanley & Co., money that will help more than 1,000 Massachusetts homeowners who are in foreclosure or saddled with unwieldy subprime mortgages.

The deal, the first of its kind in the country with Morgan Stanley, followed an investigation by Coakley’s office into the firm for fueling subprime mortgages written by New Century Financial Corp., a large California lender that went bankrupt in 2007. She said Morgan Stanley knew that New Century was making predatory loans, but continued to provide the lender billions of mortgage dollars by buying the loans to turn them into securities.

Morgan Stanley “uncovered signals pretty early on that the lending practices of New Century were not sound,’’ Coakley said at a press conference yesterday. “Morgan Stanley knew they were making loans designed to fail.’’

Most of the affected borrowers are clustered in urban communities around Boston, Chelsea, Lowell, Lawrence, and Brockton. There were also large pockets of New Century customers in Worcester and Springfield.

Under the agreement, $58 million would go to cut the principal due on New Century loans for about 600 borrowers, as well as to assist 400 other New Century borrowers who have already lost their homes in foreclosure.