NEW YORK—Morgan Stanley agreed to sell Saxon Mortgage Services, its mortgage-servicing unit, to Ocwen Financial Corp., in a long-awaited deal that ends the investment bank's foray into subprime-mortgage servicing.

The sale marks the firm's latest effort to shed noncore operations and exit mortgage operations purchased before the financial crisis. Ocwen paid $59.3 million in the deal and is also paying Morgan Stanley $1.4 billion for servicing advance receivables outstanding.

The decision to pull the plug on the Saxon unit ...