ACLU Sues Morgan Stanley Over Subprime Loans To African Americans

Posted by Orb Staff on October 15, 2012 No Comments
Categories : Residential Mortgage

12571_lawsuit ACLU Sues Morgan Stanley Over Subprime Loans To African Americans The American Civil Liberties Union (ACLU) has filed a lawsuit in the U.S. District Court in New York against Morgan Stanley, charging that the lender discriminated against African American homeowners and violated federal civil rights laws by ‘providing strong incentives to a subprime lender to originate mortgages that were likely to be foreclosed on.’

According to the ACLU, the lawsuit is the first that connects racial discrimination to the securitization of mortgage-backed securities, and it is also the first time where a prospective class of victimized homeowners is directly suing an investment bank involved in securitization of subprime loans rather than a subprime lender.

The lawsuit was filed by the national ACLU, the organization's Michigan chapter, the National Consumer Law Center and the San Francisco-based law firm Lieff Cabraser Heimann & Bernstein on behalf of five Detroit residents and Michigan Legal Services.

The ACLU says the five homeowners in the suit received their loans from now-defunct New Century Mortgage Corp. Morgan Stanley provided funds to New Century to originate the loans and ultimately purchased the loans for its securitized pools. The complaint asks the court to certify the case as a class action.

‘With this lawsuit, real victims of the subprime lending scandal are stepping forward to hold investment banks like Morgan Stanley accountable for the devastation the banks wrought in their lives and in our economy,’ says Anthony D. Romero, ACLU executive director. ‘Illegal practices surrounding mortgage-backed securities robbed people of their homes, violated our civil rights laws and left all Americans holding the bag as our economy teetered on the brink of another Great Depression.’

‘Morgan Stanley actively encouraged the proliferation of irresponsible subprime mortgage loans, the complaint charges, in order to feed its hunger for purchasing, pooling and securitizing mortgage debt for sale to investors,’ says Elizabeth J. Cabraser, a partner at Lieff Cabraser Heimann & Bernstein and co-counsel for the plaintiffs. ‘The targeting of communities of color for loans that unfairly raises the risk of default and foreclosure is the quintessential 'reverse-redlining' outlawed by the Federal Fair Housing Act.’

Morgan Stanley issued a statement that refuted the lawsuit's charges.

‘We believe these allegations are completely without merit and plan to defend ourselves vigorously,’ says the firm.

Register here to receive our Latest Headlines email newsletter




Leave a Comment