December 23, 2016 Report. from the Monitor of the 2016 Morgan Stanley Mortgage Settlement

Transcription

1 December 23, 2016 Report from the Monitor of the 2016 Morgan Stanley Mortgage Settlement

2 CONTENTS A Letter from Monitor Eric D. Green Executive Summary... 5 The Monitor s Initial Report and Establishment of Testing Procedures... 8 The Monitor s Review of the October 2016 Credit Affidavit and Periodic Credit Report... 9 Credit Sought for Loan Balance Forgiveness (Menu Items 1.E and 1.F)... 9 Credit Sought for Financing for Acquisition and Remediation of Non-Performing Loans (Menu Item 1.H) Credit Sought for Grants for Certified Land Banks (Menu Item 3.A) Credit Sought for Affordable Rental Housing (Menu Item 4) Progress toward Meeting Credit Minimums Distribution of Credit at the Census-Block Level The Monitor s Additional Steps to Oversee Implementation of the Settlement So Far Legal Compliance The Monitor s Community-Outreach Initiatives Monitor Website and Call Center Meetings with the New York Attorney General and Others Conclusions and Timeline Glossary Appendix 1 Cumulative Credit by Census Block (Menu Items 1E and 1F).. 27 Appendix 2 Calculation of Credit for Consumer Relief 43 1

3 A Letter from Monitor Eric D. Green 2

4 3

5 4

6 EXECUTIVE SUMMARY This is the December 23, 2016 Report of the independent Monitor 2 who was appointed under the February 11, 2016 Settlement Agreement between the State of New York, by Eric T. Schneiderman, Attorney General of the State of New York, and Morgan Stanley, as well as its current and former subsidiaries and affiliates including but not limited to Morgan Stanley & Co. LLC, f/k/a Morgan Stanley & Co. Incorporated, Morgan Stanley Mortgage Capital Holdings LLC, Morgan Stanley Mortgage Capital Inc., and Morgan Stanley ABS Capital I Inc. (collectively referred to as Morgan Stanley ). The Settlement Agreement settled claims that Morgan Stanley had violated New York State law in connection with residential mortgage-backed securities. This Report describes the Monitor s review of Credit claimed by Morgan Stanley through October 25, 2016 and of further activities reported to him by Morgan Stanley or undertaken by the Monitor before December 20, The focus of this Report is Morgan Stanley s Consumer Relief activities in New York as reflected in its October 25, 2016 Credit Affidavit and Periodic Credit Report. In that submission, Morgan Stanley reported for Credit 4 actions involving forgiveness of first lien debt (Menu Item 1.E), 502 actions involving forgiveness of second lien debt (Menu Item 1.F), 6 grants to local governments and eligible organizations (Menu Items 1.H and 3.A), and 2 actions to fund Critical Need Housing Developments (Menu Item 4), claiming Credit in the following amounts: 2 Definitions of this and other capitalized terms used in this Report can be found in the Glossary that begins on page 23. 5

7 Table 1: Summary of Credit Sought in October 2016 Credit Affidavit and Periodic Credit Report Menu Item Credit Sought* 1.E Balance Forgiveness First Lien (4 actions) $1,949,309 1.F Balance Forgiveness Second Liens (Including Extinguishments) (502 actions) 1.H Financing for Acquisition and Remediation of Non- Performing Loans (1 action) $57,587,469 $8,337,500 3.A Grants for Certified Land Banks (5 actions) $1,610,000 4 Affordable Rental Housing (2 actions) $30,753,658 Total Consumer Relief $100,237,936 *Amounts are rounded to the nearest dollar. As discussed in detail beginning on page 8 below, the Monitor and his professionals reviewed the Credit reported in the October 2016 Credit Affidavit and Periodic Credit Report. Subject to his final determination and certification that Morgan Stanley s Consumer Relief efforts comply with each of the requirements of Appendix B to the Settlement Agreement, the Monitor has determined that $100,237,936 of Credit for Consumer Relief reported in the October 2016 Credit Affidavit and Periodic Credit Report is correct. Through the October 2016 Credit Affidavit and Periodic Credit Report and Morgan Stanley s July 27, 2016 Credit Affidavit and Periodic Credit Report, Morgan Stanley has claimed Credit in the following amounts: 6

8 Table 2: Summary of Credit Sought through October 25, 2016 Menu Item Credit Sought* 1.E Balance Forgiveness First Lien (23 actions) $12,418,114 1.F Balance Forgiveness Second Liens (Including Extinguishments) (502 actions) 1.H Financing for Acquisition and Remediation of Non- Performing Loans (1 action) $57,587,469 $8,337,500 3.A Grants for Certified Land Banks (5 actions) $1,610,000 4 Affordable Rental Housing (2 actions) $30,753,658 Total Consumer Relief $110,706,741 *Amounts are rounded to the nearest dollar. Subject to his final determination and certification that Morgan Stanley s Consumer Relief efforts comply with each of the requirements of Appendix B to the Settlement Agreement, the Monitor has determined that $110,706,741 of cumulative Credit for Consumer Relief reported through October 25, 2016 is correct. Through its two Credit Affidavits and Periodic Credit Reports submitted to date, Morgan Stanley claims Credit exceeding 27% of the $400 million of Consumer Relief that it agreed to provide under the Settlement Agreement. Pages 8-16 below and Appendix 1 to this Report provide discussion and tables showing additional detail concerning Morgan Stanley s reported and validated Consumer Relief efforts to date and its progress toward meeting its obligations under Appendix B to the Settlement Agreement. 7

9 THE MONITOR S INITIAL REPORT AND ESTABLISHMENT OF TESTING PROCEDURES In his Initial Report, published on August 9, 2016, the Monitor described his responsibility for determining whether Morgan Stanley satisfies its obligation under the Settlement Agreement to provide Consumer Relief in New York valued at $400 million. The Monitor also explained that Morgan Stanley can earn Credit toward meeting this $400 million target by: Forgiving homeowners loan balances. Reducing the homeowner s interest rate. Donating money toward community reinvestment and neighborhood stabilization. Supporting affordable low-income rental housing. The Initial Report described in detail the ways in which Morgan Stanley can earn Credit under the Settlement Agreement by providing Consumer Relief in New York. The Monitor s job is to confirm that Morgan Stanley is acting within the agreed-upon framework, so that Morgan Stanley s Consumer Relief efforts are properly given or denied Credit, and the requirements of the Settlement Agreement are satisfied. The Initial Report reviewed Morgan Stanley s progress in providing Consumer Relief and Credit it had reported as of July 27, At the time of the Initial Report, Morgan Stanley claimed $10,468,806 of Credit for forgiveness of first lien debt owed on 19 loans. That amount is a small fraction of the Consumer Relief that Morgan Stanley committed to provide under the Settlement Agreement, and the 19-loan submission was intentionally small in number. The small size allowed the Monitor and his professionals to test the quality and methodology of testing. Under the Monitor s direction and supervision, BDO Consulting (BDO), one of the Monitor s professional advisers, performed an extensive review of the July 2016 Credit Affidavit and 8

10 Periodic Credit Report to validate the Consumer Relief Credit claimed by Morgan Stanley. Based on the results of this review, and on the Monitor s and his professionals ongoing review of Morgan Stanley s methodologies and approach, the Monitor believes that Morgan Stanley is employing a logical and appropriate approach to seeking Credit for its Consumer Relief efforts. THE MONITOR S REVIEW OF THE OCTOBER 2016 CREDIT AFFIDAVIT AND PERIODIC CREDIT REPORT During the past two months, the Monitor and his professionals have reviewed the Credit claimed by Morgan Stanley for Consumer Relief through October 25, As described in the Monitor s Initial Report, Morgan Stanley reports its Consumer Relief efforts to the Monitor for testing and validation, through a Credit Affidavit and Periodic Credit Report. The Monitor and his professionals review the Credit Affidavit and Periodic Credit Report using methods outlined in specified Testing Process Flow and Defined Terms, subject to various forms of documentation and other evidence, to determine whether all or a portion of Morgan Stanley s Consumer Relief obligations has been performed or satisfied. CREDIT SOUGHT FOR LOAN BALANCE FORGIVENESS (MENU ITEMS 1.E AND 1.F) The October 2016 Credit Affidavit and Periodic Credit Report sets forth the Consumer Relief Credit that Morgan Stanley claims to have earned through October 25, 2016 for, among other things, first lien balance forgiveness in connection with 4 loans (Menu Item 1.E) and second lien balance forgiveness in connection with 502 loans (Menu Item 1.F). With first lien balance forgiveness (Menu Item 1.E), Morgan Stanley forgives a homeowner s outstanding debt related to a first lien. This may result in the forgiveness of the homeowner s entire outstanding loan balance and may create more homeowner equity in the home and 9

11 result in a reduced monthly payment. Credit can be earned under Menu Item 1.E only if the homeowner has a loan-to-value ratio (LTV ratio) at or above 100% before the forgiveness or has missed two or more payments during the term of the loan, or if the loan is non-performing, is at imminent risk of default, or has a rate substantially above Freddie Mac s Primary Mortgage Market Survey. In addition, to be eligible for Credit under this Menu Item, forgiveness must reduce the LTV ratio to 100% or lower. If the LTV ratio is reduced to less than 100%, the borrower would then have equity in the home and would no longer be underwater. 3 A balance may also be forgiven under this Menu Item in connection with a short sale of the mortgaged home or a deed in lieu of foreclosure between the homeowner and Morgan Stanley. With second lien balance forgiveness (Menu Item 1.F), Morgan Stanley forgives a homeowner s outstanding debt related to a second lien. As with forgiveness under Menu Item 1.E, this form of Consumer Relief may create more homeowner equity in the home and result in a reduced monthly payment. In connection with the October 2016 Credit Affidavit and Periodic Credit Report, Morgan Stanley provided BDO with evidence and other documentation and data via Morgan Stanley s web portal application for digital document access and retrieval. BDO was given access to details for all 506 Consumer Relief actions reported under Menu Items 1.E and 1.F. BDO, using the data elements and evidence, went through each of the test steps and related analyses and calculations in the Testing Process Flow and Defined Terms for each of the 506 actions. During this process, Morgan Stanley cooperated fully with BDO. Based on its testing of each of the 506 actions, BDO determined that the amount of Credit claimed for Consumer Relief under Menu Items 1.E and 1.F was accurate. Table 3 summarizes the Consumer Relief and associated Credit under Menu Items 1.E and 1.F validated by BDO. BDO documented its findings in its work papers and reported them to the Monitor. The Monitor then undertook with BDO an in-depth review of its testing process, work papers, and findings. 3 When the LTV ratio is below 100%, the borrower is said to have equity in his or her home. If the borrower were to sell the home, there could be money left over after paying off the mortgage loan that would belong to the borrower. When the LTV ratio is greater than 100%, the amount the borrower still has to pay exceeds the value of the home. Were the borrower to sell the home, the proceeds from the sale would not be enough to pay back the loan. This is sometimes called being underwater. 10

12 Table 3: Results of the Review of Credit Claimed under Menu Items 1.E and 1.F Menu Item Creditable Actions Reviewed by Monitor Amount of Loan Balance Forgiven Morgan Stanley Reported Credit Amount Monitor Calculated Actual Credit Amount* Amount Overstated (Understated) 1.E 4 $1,637,301 $1,949,309 $1,949,309 $0 1.F 502 $50,076,060 $57,587,469 $57,587,469 $0 * Appendix 2 to this Report contains a brief explanation of how Credit for loan modifications and forgiveness is calculated in accordance with the Settlement Agreement. The 506 actions submitted by Morgan Stanley under Menu Items 1.E and 1.F have the following characteristics: The average forgiveness for the 4 actions under Menu Item 1.E was $409,325; The average forgiveness for the 502 actions under Menu Item 1.F was $99,753; and 304 of the 506 actions were in Hardest Hit Areas. CREDIT SOUGHT FOR FINANCING FOR ACQUISITION AND REMEDIATION OF NON-PERFORMING LOANS (MENU ITEM 1.H) Under Menu Item 1.H, Morgan Stanley can earn Credit by donating or lending funds to assist New York local government units and eligible organizations in certain consumer-relief efforts, including the acquisition of non-performing loans. If Morgan Stanley s assistance takes the form of a secured loan, the interest rate must be below 1%, and the term of the loan must be at least four years or until the disposition of the collateral securing the loan, whichever is earlier. 11

13 In the October 2016 Credit Affidavit and Periodic Credit Report, Morgan Stanley claimed $8,337,500 in Credit for one action under Menu Item 1.H, a $2.9 million grant to Preserving City Neighborhoods Housing Development Fund Corporation. The Monitor supervised extensive testing by BDO of the grant. BDO was given access by Morgan Stanley to the data elements and evidence necessary for validating the claimed Credit in accordance with Appendix B to the Settlement Agreement. BDO, using the data elements and evidence, went through each of the test steps and related analyses and calculations in the Testing Process Flow and Defined Terms. Based on its testing, BDO determined that the amount of Credit claimed for the grant was accurate. BDO documented its findings in its work papers and reported them to the Monitor. The Monitor, with BDO, then undertook an in-depth review of BDO s testing process, work papers, and findings. Table 4: Results of the Review of Credit Claimed under Menu Item 1.H Menu Item Creditable Actions Reviewed by Monitor Total Grant Amount Morgan Stanley Reported Credit Amount Monitor Calculated Actual Credit Amount Amount Overstated (Understated) 1.H 1 $2,900,000 $8,337,500 $8,337,500 $0 CREDIT SOUGHT FOR GRANTS FOR CERTIFIED LAND BANKS (MENU ITEM 3.A) Under Menu Item 3.A, Morgan Stanley can earn Credit by making grants to New York municipalities or counties to capitalize or support certified Land Banks subject to state or local regulation. Morgan Stanley may use intermediary nonprofit organizations to evaluate potential projects and administer grants under this Menu Item. 4 4 The Local Initiatives Support Corporation (LISC) is participating in this process as set forth in footnote 15 to the Settlement Agreement. 12

14 In the October 2016 Credit Affidavit and Periodic Credit Report, Morgan Stanley claimed $1,610,000 in Credit for five grants under this Menu Item. The Monitor supervised extensive testing by BDO of these grants. Morgan Stanley provided BDO with access to the data elements and evidence necessary for validating the claimed Credit in accordance with Settlement Agreement Appendix B. Using the data elements and evidence, BDO went through each of the test steps and related analyses and calculations in the Testing Process Flow and Defined Terms. Based on its testing, BDO determined that the amount of Credit claimed for the five grants was accurate. BDO documented its findings in its work papers and reported them to the Monitor. The Monitor, with BDO, then undertook an in-depth review of BDO s testing process, work papers, and findings. Table 5: Results of the Review of Credit Claimed under Menu Item 3.A Menu Item Creditable Actions Reviewed by Monitor Amount of Grants Made Morgan Stanley Reported Credit Amount Monitor Calculated Actual Credit Amount Amount Overstated (Understated) 3.A 5 $700,000 $1,610,000 $1,610,000 $0 CREDIT SOUGHT FOR AFFORDABLE RENTAL HOUSING (MENU ITEM 4) Under Menu Item 4, Morgan Stanley must provide financing or grants to New York municipalities or counties (including housing or finance agencies) to fund Critical Need Housing Developments and support services or programs for Critical Need Housing Developments. Financing for affordable low-income rental housing projects often requires subordinated loans to be provided at a loss by a governmental agency or nonprofit organization. Because Morgan Stanley will be providing this financing at a loss or making grants, public and nonprofit subordinated debt funding for low-income housing projects may be available for other projects, and more affordable rental housing may be made available than would be the case without Morgan Stanley s support. If the Consumer Relief under Menu Item 4 takes the form of a loan, the associated Credit is based on Morgan Stanley s loss on the loan. The loss is measured as the difference between the fair value and par value of the loan on the origination date. 13

15 The Settlement Agreement provides additional requirements to ensure that the developments selected to receive Consumer Relief under Menu Item 4 address critical areas and recipients. Under the Settlement Agreement, Critical Need Housing Developments are new or existing multifamily affordable rental housing developments that have been selected by the State of New York, by one of its municipalities or counties, or by any of their housing or finance agencies, and that are subject to a regulatory agreement with affordability restrictions comparable to those under the federal government s Low-Income Housing Tax Credits Program (LIHTC). In addition, the developments must meet one of the following criteria: (i) they are developed through LIHTC or are equivalent to multifamily affordable rental housing developed through LIHTC, (ii) they provide multifamily affordable rental housing for senior citizens, (iii) they provide multifamily affordable rental housing located near public transit hubs, or (iv) they provide multifamily affordable rental housing located near or otherwise providing access to health care professionals. As long as they qualify under the requirements of the Settlement Agreement, Morgan Stanley can choose the projects financed under Menu Item 4. Also, Morgan Stanley may use one or more nonprofit organizations to evaluate potential projects and administer financing or grants to municipalities or counties under this Menu Item. In the October 2016 Credit Affidavit and Periodic Credit Report, Morgan Stanley claimed $30,753,658 in Credit for two creditable actions under Menu Item 4. The Monitor supervised extensive testing by BDO of these actions. Morgan Stanley gave BDO access to the data elements and evidence necessary for validating the claimed Credit in accordance with Appendix B to the Settlement Agreement. Using the data elements and evidence, BDO went through each of the test steps and related analyses and calculations in the Testing Process Flow and Defined Terms. Based on its testing, BDO determined that the amount of Credit claimed for the two actions under this Menu Item was accurate. BDO documented its findings in its work papers and reported them to the Monitor. The Monitor then undertook with BDO an in-depth review of BDO s testing process, work papers, and findings. 14

16 Table 6: Results of the Review of Credit Claimed under Menu Item 4 Menu Item Creditable Actions Reviewed by Monitor Amount of Grants and Loss on Loans Made Morgan Stanley Reported Credit Amount Monitor Calculated Actual Credit Amount Amount Overstated (Understated) 4 2 $7,131,283 $30,753,658 $30,753,658 $0 PROGRESS TOWARD MEETING CREDIT MINIMUMS In seeking Credit for Consumer Relief, Morgan Stanley is required by the Settlement Agreement to meet certain Credit Minimums. These Credit Minimums incentivize Morgan Stanley to offer types of relief that, in the eyes of the parties to the Settlement Agreement, are likely to be most beneficial to borrowers. Data reported by Morgan Stanley through October 25, 2016 suggest that it has met the minimum under Menu Items 1.A through 1.G and has made substantial progress toward meeting several other minimums. Table 7: Progress toward Meeting Credit Minimums Menu Items Minimum Cumulative Credit Percent 1.A-1.G $70,000,000 $70,005, % 3.A $30,000,000 $1,610,000 5% 3.B $30,000,000 $0 0% 1.H, 3.A, and 3.B $125,000,000 $9,947,500 8% 4 $150,000,000 $30,753,658 21% 1-4 $400,000,000 $110,706,741 28% 15

17 DISTRIBUTION OF CREDIT AT THE CENSUS-BLOCK LEVEL Under the Settlement Agreement, the Monitor is to provide a description of the distribution of Credit at the census-block level for Menu Items 1 and 2. Census blocks are established by the United States Census Bureau to aid it in tracking data throughout the United States, Puerto Rico, and certain other U.S. territories. In 2010, there were 350,169 census blocks in New York, about one census block for every 55 people. For more information about census blocks, visit the website of the United States Census Bureau, Through October 25, 2016, the total Credit for Consumer Relief efforts under Menu Items 1 and 2 reported by Morgan Stanley is $78,343,083, in 498 different census blocks. Appendix 1 to this Report is a table describing the distribution of Credit under Menu Items 1 and 2 at the censusblock level. 5 5 Census block information for relief provided under Menu Item 1.H with respect to specific loans addressed through a third party is not available due to privacy restrictions and is not included in this Report. 16

18 THE MONITOR S ADDITIONAL STEPS TO OVERSEE IMPLEMENTATION OF THE SETTLEMENT SO FAR LEGAL COMPLIANCE The Settlement Agreement requires that Consumer Relief not be implemented through any policy that violates the Fair Housing Act or the Equal Credit Opportunity Act. The Monitor began his review of Morgan Stanley s compliance with this requirement before the testing of the first 19 Consumer Relief actions, and by the time of his Initial Report, the Monitor had not identified any facts or circumstances that raised any concerns that Morgan Stanley s Consumer Relief efforts were not compliant. Since the Initial Report, the Monitor has informed Morgan Stanley that he intends to continue his review of its compliance with the requirement that its Consumer Relief efforts not be implemented through policies that violate the Fair Housing Act or the Equal Credit Opportunity Act, and Morgan Stanley has agreed to cooperate with the Monitor s review and the process the Monitor and Morgan Stanley have developed. The Monitor intends, among other things, to continue to examine the policies Morgan Stanley has established and followed in implementing Consumer Relief, review relevant written policies, and interview additional key personnel in business and compliance roles. To date, the Monitor has not observed any facts or circumstances that would suggest that Morgan Stanley is implementing Consumer Relief through a policy that violates the Fair Housing Act or Equal Credit Opportunity Act. The Monitor s work in this area is ongoing. 17

19 THE MONITOR S COMMUNITY-OUTREACH INITIATIVES The Monitor has undertaken the following community-outreach initiatives to date. MONITOR WEBSITE AND CALL CENTER The Monitor conducts community outreach though a website that provides information about the Settlement Agreement and available relief for both borrowers and community-relief organizations. The website, is completely independent from Morgan Stanley and is managed by the Monitor s staff and his professionals. The website contains, among other things, information about the Settlement Agreement and the role of the Monitor, and frequently asked questions for homeowners and community-relief organizations. The website also contains copies of the Settlement Agreement and this Report. The Monitor encourages homeowners considering mortgage modifications or other relief from Morgan Stanley under the Settlement Agreement to obtain legal or tax advice from a lawyer or tax adviser. The Monitor is prohibited by the Settlement Agreement from giving such advice. On his website, the Monitor provides contact information for legal and taxpayer clinics for individual homeowners who desire assistance but do not know where to obtain it or cannot afford it. The Monitor s website also provides a list of additional resources, including contact information for Morgan Stanley, the Attorney General of the State of New York, and the Financial Fraud Enforcement Task Force. The Monitor s website also provides information for contacting the Monitor and his staff. The website lists the mailing address for the Monitor (Monitor of the Morgan Stanley Mortgage Settlement, P.O. Box 10300, Dublin, OH ) and the address for the Monitor (morganstanleymonitor@mortgagesettlementmonitor.com). 18

20 The Monitor s website also includes information about the Monitor s call center hotline, which is maintained in Dublin, Ohio. The Monitor established a toll-free number, , for borrowers and community-relief organizations looking for more information about the Settlement Agreement. As of December 19, 2016, the call center has received 73 calls. MEETINGS WITH THE NEW YORK ATTORNEY GENERAL AND OTHERS The Monitor has met with the Office of the Attorney General of the State of New York to discuss the Settlement Agreement and the Monitor s role. The Monitor intends to continue his dialogue with the Attorney General s office, and welcomes future meetings with interested parties. The Monitor has instituted an open door policy with respect to any interested party. CONCLUSIONS AND TIMELINE On the basis of the information submitted to the Monitor and the work described in this Report, and subject to his final determination and certification that Morgan Stanley s Consumer Relief efforts comply with each of the requirements of Appendix B to the Settlement Agreement, the Monitor reports the following: The Monitor has determined that $100,237,936 of Credit for Consumer Relief reported in the October 2016 Credit Affidavit and Periodic Credit Report is correct; and As of the date of this Report, the Monitor has no reason to believe that Morgan Stanley has failed to comply with the requirements of Appendix B to the Settlement Agreement. Together, the Consumer Relief reported and validated to date represents 533 creditable actions and $110,706,741 of Credit. 19

21 Table 8: Total Reported and Validated Credit to Date 20

22 Table 9: Cumulative Credit by Menu Item 21

23 The Monitor expects that his next report on Morgan Stanley s Consumer Relief efforts and other activities will be issued on or around March 31, 2017, covering the Monitor s review of Morgan Stanley s future Credit submissions and other work by the Monitor concerning Morgan Stanley s compliance with the terms of the Settlement Agreement. Dated: December 23,

24 GLOSSARY Appendix B. Appendix B to the Settlement Agreement. BDO. BDO Consulting, a division of BDO USA, LLP. Census Tract. Small, relatively permanent subdivision of a county or equivalent entity that is updated before each decennial U.S. census. The population in a Census Tract is generally between 1,200 and 8,000 people. Consumer Credit Protection Act. Federal law that protects consumers in credit transactions by, among other things, requiring full disclosure of loan terms. Consumer Relief. Any of the forms of relief that Morgan Stanley may deliver for Credit under the Settlement Agreement. Credit. Credit that may be earned by Morgan Stanley under the Settlement Agreement by delivering Consumer Relief. Credit Affidavit and Periodic Credit Report. Document in which Morgan Stanley reports to the Monitor the Credit Morgan Stanley claims for Consumer Relief in the most-recent period and to date. Critical Need Housing Development. New or existing multifamily affordable rental housing development that has been selected by the State of New York, by one of its municipalities or counties, or by any of their housing or finance agencies; that is subject to a regulatory agreement with affordability restrictions comparable to those under the federal government s Low-Income Housing Tax Credits Program (LIHTC); and that meets one of the following criteria: (i) it is developed through LIHTC or is equivalent to multifamily affordable rental housing developed through LIHTC, (ii) it provides multifamily affordable rental housing for senior citizens, (iii) it provides multifamily affordable rental housing located near public transit hubs, 23

25 or (iv) it provides multifamily affordable rental housing located near or otherwise providing access to health care professionals. Defined Terms. See Testing Process Flow below. DOJ. United States Department of Justice. Early Incentive Credit. Additional Credit available to Morgan Stanley for offering or completing certain Consumer Relief by February 10, Equal Credit Opportunity Act. Federal law that prohibits discrimination by creditors with respect to any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, or age; because an applicant receives income from a public assistance program; or because an applicant has in good faith exercised any right under the Consumer Credit Protection Act. Equity. The amount (if any) by which the value of a home exceeds the amount owed on any mortgages on the home. Fair Housing Act. Federal law that makes it unlawful for housing providers to discriminate based on race, color, national origin, religion, sex, familial status, or handicap (disability) in all aspects of residential real estate transactions. Federal Housing Finance Agency. Independent regulatory agency created by the federal Housing and Economic Recovery Act of 2008 and responsible for the oversight of components of the secondary mortgage markets. Financial Fraud Enforcement Task Force. Federal task force established in November 2009 to investigate and prosecute financial fraud. Freddie Mac. Federal Home Loan Mortgage Corporation, a private corporation chartered by the federal government, providing a secondary market for mortgages. 24

26 Hardest Hit Areas. Census Tracts identified by HUD containing large concentrations of vacantdistressed properties and foreclosure activities. Hardest Hit Fund. Federal fund that provides assistance to the 18 states hit hardest by the housing crisis, plus the District of Columbia, to develop locally tailored programs that assist struggling homeowners in their communities. HARP. Home Affordable Refinance Program, established by the Federal Housing Finance Agency in March 2009 to assist homeowners who have little or no equity in their homes in refinancing their mortgages. Home Affordable Modification Program. Federal mortgage-modification program in conjunction with participating loan servicers. HUD. United States Department of Housing and Urban Development. Initial Report. Initial Progress Report of the Monitor, published on August 9, Land Bank. Entity formed under state law to return vacant, abandoned, or tax-delinquent properties to productive use by acquiring, stabilizing, and selling such properties, and by assembling projects for long-range redevelopment plans. Liquidated Damages. Compensatory payment that Morgan Stanley is required to make to the State of New York if the Monitor determines that as of September 30, 2019, Morgan Stanley has fallen short in satisfying its Consumer Relief obligations. Local Initiatives Support Corporation (LISC). Nonprofit organization that connects public and private funding sources with struggling communities and helps key local players develop solutions. Low-Income Housing Tax Credits Program (LIHTC). Federal program that offers tax credits for investments in eligible low-income rental housing. 25

27 LTV Ratio. The ratio between the amount owed on a mortgage loan and the value of the home subject to the mortgage. Making Home Affordable Program. Federal program to help struggling homeowners avoid foreclosure through such solutions as mortgage modification or refinancing, mortgage forbearance, short sales, and deed in lieu of foreclosure. The Home Affordable Modification Program is part of the Making Home Affordable Program. Menu Items. The categories of Consumer Relief specified in Appendix B to the Settlement Agreement. Monitor. Professor Eric D. Green, the independent Monitor under the Settlement Agreement. Morgan Stanley. Morgan Stanley and its current and former subsidiaries and affiliates, including but not limited to Morgan Stanley & Co. LLC, f/k/a Morgan Stanley & Co. Incorporated, Morgan Stanley Mortgage Capital Holdings LLC, Morgan Stanley Mortgage Capital Inc., and Morgan Stanley ABS Capital I Inc. Primary Mortgage Market Survey. Weekly survey by Freddie Mac of lenders on the rates and points for certain mortgage products. RMBS. Residential mortgage-backed securities. Settlement Agreement. February 11, 2016 Settlement Agreement between the State of New York, by Eric T. Schneiderman, Attorney General of the State of New York, and Morgan Stanley. Testing Process Flow. Methods used in conjunction with the Defined Terms and various forms of documentation and other evidence to determine whether all or a portion of the Consumer Relief obligations of Morgan Stanley have been performed or satisfied. Underwater. When the amount owed on a mortgage loan exceeds the value of the home subject to the mortgage. 26

28 Appendix 1 - Cumulative Credit by Census Block (Menu Items 1E & 1F)* Total State Code County Code Census Tract Census Block Reported Credits $47, $4, $24, $38, $26, $121, $142, $115, $158, $77, $134, $157, $116, $107, $156, $157, $142, $188, $102, $130, $130, $102, $85, $342, $673, $126, $164, $87, $1,057,088 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 27

29 Total State Code County Code Census Tract Census Block Reported Credits $180, $77, $83, $162, $156, $125, $123, $157, $42, $148, $483, $151, $90, $144, $154, $99, $91, $131, $96, $164, $86, $117, $25, $13, $6, $155, $68, $317, $87, $71, $70, $251,749 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 28

30 Total State Code County Code Census Tract Census Block Reported Credits $110, $286, $93, $354, $185, $184, $156, $126, $164, $172, $2, $181, $131, $183, $391, $145, $153, $84, $126, $183, $166, $87, $149, $149, $133, $150, $159, $267, $170, $431, $121, $121,595 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 29

31 Total State Code County Code Census Tract Census Block Reported Credits $68, $115, $135, $80, $162, $105, $122, $93, $153, $102, $87, $113, $418, $155, $31, $130, $174, $81, $45, $117, $97, $133, $277, $155, $54, $258, $169, $318, $611, $213, $158, $156,003 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 30

32 Total State Code County Code Census Tract Census Block Reported Credits $122, $71, $436, $163, $95, $105, $114, $108, $94, $102, $91, $67, $123, $316, $124, $93, $522, $185, $131, $187, $148, $172, $108, $131, $133, $102, $65, $54, $90, $118, $143, $111,733 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 31

33 Total State Code County Code Census Tract Census Block Reported Credits $25, $94, $157, $493, $25, $61, $18, $11, $89, $24, $18, $104, $114, $129, $97, $97, $75, $73, $79, $83, $107, $136, $112, $59, $67, $90, $83, $130, $560, $98, $40, $41,975 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 32

34 Total State Code County Code Census Tract Census Block Reported Credits $80, $119, $658, $67, $140, $113, $88, $485, $118, $121, $102, $83, $95, $107, $92, $88, $90, $114, $142, $112, $64, $114, $109, $131, $942, $115, $86, $137, $51, $112, $729, $125,523 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 33

35 Total State Code County Code Census Tract Census Block Reported Credits $136, $101, $571, $290, $32, $19, $365, $100, $30, $67, $124, $29, $73, $108, $162, $101, $28, $117, $153, $93, $85, $173, $131, $94, $148, $175, $110, $154, $154, $202, $164, $131,361 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 34

36 Total State Code County Code Census Tract Census Block Reported Credits $174, $701, $89, $157, $182, $41, $840, $128, $112, $68, $96, $106, $101, $46, $78, $159, $156, $130, $247, $169, $101, $99, $245, $125, $129, $68, $193, $138, $112, $151, $118, $181,964 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 35

37 Total State Code County Code Census Tract Census Block Reported Credits $184, $109, $297, $144, $134, $143, $45, $59, $134, $116, $63, $60, $133, $90, $90, $128, $103, $104, $155, $148, $189, $89, $94, $228, $126, $89, $99, $309, $128, $140, $191, $99,200 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 36

38 Total State Code County Code Census Tract Census Block Reported Credits $132, $101, $95, $150, $40, $117, $125, $97, $76, $133, $102, $127, $145, $104, $104, $123, $97, $113, $61, $77, $144, $108, $109, $152, $136, $126, $147, $107, $154, $61, $246, $75,024 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 37

39 Total State Code County Code Census Tract Census Block Reported Credits $186, $93, $79, $131, $155, $95, $124, $124, $137, $120, $134, $111, $263, $157, $336, $140, $120, $128, $75, $209, $273, $94, $117, $172, $196, $266, $120, $13, $14, $82, $120, $96,340 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 38

40 Total State Code County Code Census Tract Census Block Reported Credits $101, $117, $55, $238, $69, $119, $84, $80, $595, $145, $56, $132, $31, $171, $52, $20, $37, $81, $149, $98, $114, $113, $335, $134, $111, $707, $71, $42, $95, $22, $20, $46,700 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 39

41 Total State Code County Code Census Tract Census Block Reported Credits $58, $52, $603, $101, $62, $80, $124, $551, $272, $19, $253, $107, $111, $87, $90, $83, $113, $36, $92, $117, $96, $83, $79, $91, $82, $86, $107, $88, $632, $77, $128, $104,382 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 40

42 Total State Code County Code Census Tract Census Block Reported Credits $110, $41, $767, $47, $68, $91, $120, $101, $83, $44, $72, $131, $77, $97, $78, $136, $72, $88, $84, $70, $96, $68, $223, $109, $25, $83, $39, $46, $36, $23, $109, $19,405 * Statistics as reported by Morgan Stanley. Figures have been rounded to the nearest dollar. Totals may not equal the sum of components due to rounding. 41