The American Civil Liberties Union sued Morgan Stanley Oct. 15 for racial discrimination in allegedly pushing predatory loans that were likely to be foreclosed upon towards black homeowners.
According to Anthony Romero, executive director of the American Civil Liberties Union, the complaint filed in U.S. District Court in New York is the first case where victimized homeowners are suing an investment bank directly rather than the subprime lender whose loans the bank bought.
“This lawsuit is literally the first case in which Main Street is holding Wall Street accountable for the abuses that happened in the aftermath of the Great Recession that impacted millions of Americans, and specifically racial minorities, in the losses of their houses by shoddy lending practices,” Romero said at a press conference.
In the lawsuit, which the ACLU asked the court to certify as a class action, five Detroit residents allege that Morgan Stanley violated federal civil rights laws by deploying policies that enabled the origination of exceedingly high-cost and high-risk residential mortgage loans for the purpose of purchasing, pooling and securitizing those loans at a profit.
The homeowners received the loans from now-defunct New Century Mortgage Corp. Morgan Stanley allegedly dictated the terms of the loans purchased for its securitized pools because the New York-based financial services company made a profit at the outset when the securities were created and sold, the complaint said.
Even though
“What Morgan Stanley and others did has been an incredible setback to the American dream because it exploited hardworking people and treated them as fodder and collateral damage as a raw product of an cruel mortgage investment initiative,” said Elizabeth Cabraser, a partner at Lieff Cabraser Heimann & Bernstein, co-counsel, representing the plaintiffs in this lawsuit. “These loans were mass produced and built to not serve homeowners or comply to responsible lending practices.”
Cabraser added that what Morgan Stanley did is essential “redlining” by denying or limiting financial services to specific neighborhoods due to ethnicity or income, therefore violating the Fair Housing Act.
Despite the lawsuit focusing on lending abuses in Detroit which the ACLU said impacted approximately 6,000 homeowners, the ACLU claims these deceptive practices victimized black and Latino neighborhoods nationwide.
Morgan Stanley denied any wrongdoings pertaining to these accusations.
“We believe these allegations are completely without merit and plan to defend ourselves vigorously,” a spokesperson for Morgan Stanley said in an email.
