Attorney General Catherine Cortez Masto said in a statement the settlement was reached with the bank to end an investigation involving 3,000 subprime mortgages the bank purchased and sold to investors.
Morgan Stanley Capital Holdings also agreed to improve its practices and "refund and adjust interest rates for certain Nevada borrowers."
In the settlement, the bank agreed to pay $7.2 million that will go toward combating foreclosures and to prevent mortgage fraud in the state.
The settlement, called an assurance of discontinuance, "will provide relief to between 600 and 700 customers and will provide relief valued at between $21 million and $40 million," the attorney general said.
The state said the New York bank deceived customers about interest rates, including the "payment shock" of rates that climbed "when an initial teaser rate expired."
Some customers, the state said, qualified for loans only at the teaser rate, but not at the adjusted rate that would be in effect "for most of the loan's term."
"Morgan Stanley's deceptive practices hurt Nevada homeowners and played a role in our economy's decline," Cortez Masto said.
"This is the first step in the right direction to protect consumers and put an end to this financial firm's egregious behavior," she said.
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