The U.S. Department of Justice is examining the relationship between Morgan Stanley and now-defunct New Century Financial Corp. in the sale of subprime mortgages in the run-up to the financial crisis, New York Times reported.

The DOJ and Morgan Stanley are aiming to reach a settlement early in the new year, the newspaper said, citing a person briefed on the matter.

New Century, once one of the largest U.S. providers of subprime mortgages, went out of business after filing for bankruptcy protection in 2007.

Emails and confidential documents filed in court show how Morgan Stanley pushed New Century to issue riskier mortgages with burdensome conditions that would be lucrative for the bank, the Times said.

"Morgan Stanley is involved in almost every strategic decision that New Century makes in securitized products," the Times quoted an internal 2004 Morgan Stanley report as saying.

Morgan Stanley was regularly the largest single buyer of subprime loans from New Century, the newspaper added.

Morgan Stanley spokeswoman Mary Claire Delaney said the bank had no comment.