Earlier this year, Morgan Stanley agreed to a $3.2 billion settlement over its “deceptive” mortgage bond practices in the run-up to the financial crisis.

Part of that settlement included a commitment to provide $400 million in consumer relief for New York residents affected by Morgan Stanley’s alleged actions, set to be distributed by the end of September 2019.

Now, Morgan Stanley is taking its first steps to fulfill that commitment, by providing principal forgiveness to a handful of borrowers as a “test drive” of its relief plan, according to a new report from Eric Green, the independent monitor of the consumer-relief portion of the settlement.

The settlement stems from Morgan Stanley’s alleged misrepresentations about the security and safety of residential mortgage-backed securities it sold before the financial crisis.

According to the office of New York Attorney General Eric Schneiderman, Morgan Stanley made multiple representations to RMBS investors about the quality of the mortgage loans it securitized and sold to investors, and its process for screening out questionable loans.

Per Green’s report, Morgan Stanley recently began engaging in its consumer relief efforts by forgiving $10,468,806 in principal on 19 first-lien mortgage loans.

“This initial batch of forgiveness, representing less than 3% of Morgan Stanley’s overall consumer-relief obligations under the settlement, provided a ‘test drive’ allowing the monitor and his team of legal, finance and accounting professionals to assess Morgan Stanley’s plan for delivering relief and its methodology for calculating how the assistance qualifies for credit under the terms of the settlement agreement,” Green’s office said in a release. “Based on their initial review, Professor Green said he believes that Morgan Stanley is ‘employing a logical and appropriate approach to seeking credit for its consumer-relief efforts.’”

Green’s office stated that 11 of the initial 19 loans were for homes located in Hardest Hit Areas, census tracts identified by the Department of Housing and Urban Development as containing large concentrations of distressed properties and foreclosure activities.

According to Green’s office, the average principal forgiven on these loans was more than $430,000.

Additionally, 18 of the 19 borrowers owed more on their mortgages than the homes were worth.  

After the debt forgiveness, all 19 homes had loan-to-value ratios of 100% or lower, Green’s office said.

Green said that in the next several months, his office should get a “clearer picture of how quickly Morgan Stanley is delivering on its consumer-relief obligations and how much of what kind of relief is being delivered” to the affected borrowers.

“Morgan Stanley has committed to do its part to help New York residents who are still in their homes but struggling with their mortgage payments,” Green said. “I have been charged to monitor and report on how well Morgan Stanley keeps its commitment. I recognize and accept the serious responsibility of my assignment.”

The state of New York is also using some of the funds from Morgan Stanley to engage in “first of its kind” program to buy a number of delinquent loans from the Federal Housing Administration as part of an effort to keep struggling homeowners from losing their homes to foreclosure.