Morgan Stanley settles lawsuit in Massachusetts

Saxon Mortgage parent company Morgan Stanley agreed to pay millions of dollars to the state of Massachusetts to end an investigation into its role in loaning billions to a company that gave mortgages to unqualified borrowers.

The financial services firm, which funded subprime loans throughout the country, agreed to give Massachusetts a settlement of $102 million rather than let an investigation into billions of dollars worth of loans to a lender called New Century, according to the state attorney general’s office. New Century used the Morgan Stanley money to fund subprime loans in the state. Morgan Stanley then packaged those loans and sold them to big investors like pension funds.

As part of the settlement, Morgan Stanley will pay $58 million to the borrowers affected by these risky loans, and another $23 million will go to a fund to cover the losses suffered by two Massachusetts reserve funds.