ACLU Sues Morgan Stanley Over Risky Mortgages
DETROIT (WWJ/AP) - Morgan Stanley is being accused of discriminating against black homeowners and violating federal civil rights laws by providing strong incentives to a subprime lender to originate mortgages that were likely to go unrepaid.
The lawsuit, which seeks class-action status, was filed Monday by the American Civil Liberties Union and others on behalf of five Detroit residents and Michigan Legal Services.
The five homeowners in the lawsuit received their loans from subprime lender New Century Mortgage Corp., which has since collapsed. The lawsuit claims Morgan Stanley pushed New Century to issue certain types of loans with no concern about risk, because it made its profit at the outset when the investment bank bundled the loans into securities and sold them.
"(The bank made) very deliberate decisions to issue very high-risk loans to people who could not afford them, with the very real consequence that, in Detroit, loans from Morgan Stanley resulted in a foreclosure rate second only to Oakland, California," said ACLU executive, Director Kary Moss.
Moss said 67,000 foreclosed properties in the city -- 65 percent stand vacant. She said Morgan Stanley was a major contributor.
Bank officials deny any wrongdoing saying, in a statement, "We believe these allegations are completely without merit and plan to defend ourselves vigorously."
The lawsuit was filed in U.S. District Court in New York.
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