Morgan Stanley (MS) agreed to pay $7.2 million to settle a subprime mortgage securitization investigation launched by Nevada Attorney General Catherine Cortez Masto. The investment bank will adjust interest rates for 600 to 700 Nevada homeowners and pay the fine, which will go toward preventing foreclosures and mortgage fraud in the state. Morgan Stanley also agreed to uphold certain practices when securitizing loans. Masto filed an assurance of discontinuance to resolve her office's investigation of Morgan Stanley's alleged role in purchasing and securitizing 3,000 subprime mortgages in Nevada. An assurance of discontinuance is not an admission of guilt on the firm's part and essentially outlines terms of an agreement between the two parties. "We are pleased to have resolved this matter in a way that benefits Nevada homeowners," Morgan Stanley said Tuesday. The agreement, which was filed with the 8th Judicial District Court, will offer relief valued at $21 million to $40 million to 600 to 700 consumers in Nevada. The original subprime MBS investigation launched by the AG focused on alleged misrepresentations made by lenders, including New Century Financial, which filed for bankruptcy about four years ago. The loans in question were bought and securitized by Morgan Stanley, the AG said. Matso's office contends the mortgages pushed through securitization by the investment bank had appraisal and underwriting issues, which inflated their values. As part of the agreement, Morgan Stanley will cap interest rates for eligible borrowers at a fixed-rate while refunding interest payments to certain borrowers above the initial teaser rate. In addition, the bank will make payments to eligible borrowers who either defaulted on loans after their interest rates reset or make payments to eligible borrowers for whom the value of their home is at least 5% off the mortgage value. Last week, Matso said mortgage servicers could soon face criminal charges in Nevada. Write to Kerri Panchuk.