Inside Morgan Stanley's private bank for the ultrawealthy, a mortgage employee questioned how a client kept applying for new owner-occupied home loans in just a few years. The client had already received several such mortgages, which carry lower interest rates and smaller down payments than second-home or investment-property loans. Seeking the wrong loan type can constitute fraud.

"This is getting ridiculous," the banker said. His mortgage colleagues told him to drop his concerns, according to people familiar with the matter. They didn't want pushback from a financial adviser who managed the client's wealth assets. After the mortgages were issued, the banker found some properties had been demolished or renovated and listed for sale.

Current and former employees, emails, and internal documents describe tension between financial advisers managing high-net-worth clients and mortgage staff who feel pressured to set aside concerns. The Wall Street Journal also reviewed a whistleblower's complaint filed with federal regulators by another former employee. Morgan Stanley says it hasn't "compromised its underwriting standards."