The American Civil Liberties Union, the National Consumer Law Center and others have sued investment bank giant Morgan Stanley on behalf of five black Detroit homeowners.
They say Morgan Stanley encouraged a now-defunct subprime mortgage lender, New Century Mortgage Corp., to push the high-risk loans in predominantly black neighborhoods. Morgan Stanley then profited from selling those loans on the mortgage securities market before the housing market collapsed, the lawsuit alleges.
The result, said Michigan ACLU Director Kary Moss, was devastation in many Detroit neighborhoods.
“Of 67,000 foreclosed properties in the city, 65% stand vacant,” Moss said. “Morgan Stanley is a major contributor to that situation.”
Moss said the ACLU chose Detroit because data shows that’s where New Century’s loans did the most damage.
“So that data, coupled with direct evidence that we’ll have from witnesses and our plaintiffs, will tell a story of discrimination,” Moss said.
The ACLU alleges that Morgan Stanley’s actions violated the 1968 Fair Housing Act, and other federal anti-housing discrimination laws. The lawsuit was filed in a New York federal court because it’s “right in Morgan Stanley’s and Wall Street’s backyard,” said national ACLU Chairman Anthony Romero.
The ACLU says this is the first suit to draw a direct link between racial discrimination, predatory lending, and a financial institution that securitized and sold mortgages.
Though there are only 5 plaintiffs so far, but the lawsuit seeks class-action status. The ACLU says as many as 3500 others.
One of the plaintiffs is Charmaine Williams. She lost her home on the city’s east side last year, after re-financing with New Century in 2007. She said many of her neighbors had done the same thing, and the neighborhood went into a quick downward spiral.
“I spoke to a couple of neighbors, and some of them were saying they had re-financed, and just found themselves in situations where they couldn’t keep up with some of the payments,” said Williams. “So they were forced to sell their houses, but a lot of them had a hard time selling their houses. So some of them just ended up…having to leave. Leave it behind.”
A Morgan Stanley spokeswoman had this response to the lawsuit: "We believe these allegations are completely without merit and plan to defend ourselves vigorously."