Morgan Stanley [1] is the latest company to make peace with the Federal Housing Finance Agency [2] (FHFA) over alleged misrepresentation of bad securities sold to Fannie Mae and Freddie Mac.
In a filing [3] with the Securities and Exchange Commission (SEC) Tuesday, Morgan Stanley revealed it has reached a $1.25 billion agreement in principle with FHFA to resolve pending mortgage-backed securities (MBS)-related litigation. In connection with the settlement, the company announced it is recording a $150 million addition to its fourth-quarter legal reserves.
The agreement remains subject to final approvals by both parties.
FHFA did not release a statement on the settlement, though a public affairs officer confirmed the language in the SEC filing.
Morgan Stanley is the eighth bank to settle with FHFA out of 18 named in a legal complaint filed in 2011 on behalf of the GSEs. The banks were accused of making untrue statements and “material omissions” in MBS sales, resulting in disastrous losses at Fannie Mae and Freddie Mac.
Last year, the agency recovered approximately $8 billion in settlements [4] related to that filing, with JPMorgan Chase, UBS Americas, Citigroup, and Ally Financial—among others—all striking deals to wipe the slate clean.