U.S. civil rights activists announced plans to sue investment bank, Morgan Stanley, over its securitization of sub-prime mortgages, in a bid to create a link between “predatory lending” practices and securitization.
The American Civil Liberties Union (ACLU), the National Consumer Law Center, and a law firm, Lieff Cabraser Heimann & Bernstein, said that they will file a lawsuit Monday against Morgan Stanley, charging it violated federal housing and anti-discrimination laws by adopting policies that caused predatory lending and adversely affected black homeowners.
The case has not been heard yet in court, and none of the allegations have been proven.
The organizations said that the case is being filed on behalf of several black homeowners in Detroit, and that they are seeking to have the case certified as a class action.
They also claim that the suit is the first where homeowners are suing an investment bank rather than the subprime lender, in an effort to make a connection between securitization and racial discrimination.
The lawsuit, filed in U.S. District Court in New York, charges that Morgan Stanley discriminated against black 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.
The five plaintiffs in the suit received their loans from now-defunct, subprime lender, New Century Mortgage Corp. The ACLU says that Morgan Stanley was New Century’s largest buyer of subprime loans; that it provided funds to New Century to originate the loans, dictated the terms of the loans it wanted, and ultimately purchased them for its securitized pools. And, it claims that as minority residents in Detroit had few alternative sources of credit, they were the natural targets for these “predatory” loans.
“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,” said Elizabeth 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.”
“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,” said Anthony Romero, executive director of the ACLU. “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.”