Morgan Stanley, an investment bank, received a lawsuit from American Civil Liberties Union(ACLU)regarding the discrimination it had done against African-American borrowers by offering incentives to lenders so that mortgages proves costly and risky but profit from buying and guaranteeing loans.
According to ACLU, the complaint against Morgan Stanley is first class-action lawsuit in order to associate discrimination to the securitization of mortgage-backed assurances. It’s just ironic because the suit is against Morgan Stanleynot against the subprime lenders wherein the loan originates. Since it is class-action status, it stands for 6,000 African-American homeowners in Detroit urban area.
On behalf of 5 Detroit inhabitants and a nonprofit legal aid group Michigan Legal Services, there are four groups that filed a complaint in the U.S District Court of New York. These are ACLU, ACLU of Michigan, the National Consumer Law Center, and Lieff Cabraser Heimann & Bernstein (a San Francisco-based law firm). The suits contend that Morgan Stanley violated several state laws including Fair Housing Act, Michigan-Larsen Civil Rights Act, and Equal Credit Opportunity Act by urging now-useless New Century Mortgage Corporation to target African-American communities and borrowers in the Detroit area for particular dangerous loans.
One complainant said that a black borrower is likely to acquire a high-cost loan compare to a white borrower. Another complainant mentioned that Morgan Stanley influenced New Century with the kinds of loans it issued. The complainant continued by saying that the loans are dangerous for borrowers because it has a characteristic of risky features that put borrowers toward evasion and foreclosure.
Of course, Morgan Stanleyreacted that it will defend itself “vigorously”. According to the ACLU, New Century’s largest customer of subprime loans is Morgan Stanley. ACLU said, “The investment bank encouraged New Century to ignore all of the most basic fair lending principles in order to create a large number of mortgages that could be processed and sold as securities.”
It is definitely heartbreaking to hear such words coming from ACLU executive director, Anthony D. Romero, that financial services are doing such practice and in fact it had become common during the housing boom to target African-American and Latino neighborhoods countrywide.
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