The ACLU, along with the National Consumer Law Center and the law firm of Lieff, Cabraser, Heimann & Bernstein, has filed a lawsuit in federal district court in Manhattan to hold Morgan Stanley accountable for its collaboration with the subprime lender New Century, which supplied Morgan Stanley with a steady stream of irresponsible, high-risk loans issued in communities of color that were particularly vulnerable to economic ruin. Although practices like these inflicted damages in low and middle-income communities across the nation, Detroit was particularly vulnerable.
The Plaintiffs in the case are African American residents of Detroit, MI who have been harmed by Morgan Stanley’s practice of purchasing and financing predatory home mortgage loans to be included in mortgage-backed securities.
Although by no means the only institution that engaged in predatory practices, Morgan Stanley was the architect of a volatile and discriminatory structure of mortgage-backed securities, whose consequences are still being felt in Detroit’s hardest-hit neighborhoods.
Morgan Stanley systematically disregarded basic guidelines for safe lending and signaled its willingness to purchase loans that placed borrowers at elevated risk of foreclosure. In fact, Morgan Stanley often purchased loans containing multiple high-risk factors, and the bank’s appetite for extremely risky loans incentivized New Century to favor predatory loans – high-cost loans, sometimes made fraudulently, with risky features and unreasonably high chances of foreclosure.