ACLU: Morgan Stanley Liable for Discriminatory Subprime Loans

October 15, 2012

The American Civil Liberties Union (ACLU) announced it would be filing a lawsuit against investment bank Morgan Stanley, alleging discrimination in the way the bank packaged subprime mortgage loans into securities.

The lawsuit, which the ACLU says is the first against an investment bank, will be filed on behalf of five Detroit residents and ACLU's Michigan affiliate. The group says that discrimination lawsuits have traditionally been brought directly against the original mortgage lenders rather than investment banks that packaged the loans into securities.

According to The New York Times, the ACLU believes Morgan Stanley is culpable for predatory loans made through the New Century Financial Corporation, a now-defunct subprime lender. Morgan Stanley lent billions of dollars to New Century, and allegedly pressured it to make troublesome loans to African-American borrowers who could not afford them. The newspaper goes on to quote one borrower who said that a New Century broker told her to "fudge" her income so she could qualify. 

"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 ACLU Executive Director Anthony Romero.

The group includes in the filing a study that found African-Americans living in the Detroit area were 70 percent more likely to wind up with a subprime loan than were white borrowers with similar financial characteristics.

Both the Chicago Tribune and The New York Times noted Morgan Stanley had no immediate comment on the filing.

Sources: "ACLU sues Morgan Stanley alleging discrimination in subprime mortgages," Chicago Tribune, (Oct. 15, 2012) and "A.C.L.U. to Sue Morgan Stanley Over Mortgage Loans," The New York Times, (Oct. 15, 2012)