Oct 17, 2012
The Wall Street Journal reports that American Civil Liberties Union (ACLU) filed suit on behalf of Michigan Legal Services, a non-profit community advocacy group, and five individual Detroit residents against Morgan Stanley. The ACLU alleges that Morgan Stanley provided critical funding to New Century Financial Corp., a now-defunct subprime lender, and encouraged lending tactics that raised the risks associated with the loans. New Century was the second biggest U.S. subprime mortgage lender until its collapse in April 2007. The ACLU accuses Morgan Stanley of discriminating against black homeowners and violating federal civil rights laws by providing incentives to subprime mortgage lenders to originate mortgages that were destined for foreclosure. The ACLU is calling it the first case to connect racial discrimination to mortgage securitization, in which loans are bundled and sold to institutional investors. It is also the first case where homeowners are suing an investment bank directly rather than the subprime lender whose loans the bank bought, the ACLU said.