Morgan Stanley Hit by Subprime Loan Suit
Morgan Stanley allegedly violated civil rights laws by providing strong incentives to a subprime lender to originate mortgages to black homeowners that were likely to go un-repaid, claims the American Civil Liberties Union (ACLU).
The Associated Press (AP) reported that the ACLU and others filed a consumer fraud lawsuit seeking class-action status against Morgan Stanley on behalf of five homeowners who received subprime loans from the now-defunct New Century Mortgage Corp. The suit alleges that black borrowers in Detroit were more likely to receive the high-cost subprime loans than white borrowers in the city.
The lawsuit claims that Morgan Stanley pushed New Century to make certain types of loans with no concern about risk because Morgan made its profit at the start of the process – and before the loans went bad – by bundling them into mortgage bonds to be sold to large investors, according to the AP.
Morgan Stanley denies the charges. Executives from New Century stated that they gave loans mainly on their appeal to other firms dealing in the mortgage-bond market, and not on whether the borrowers could afford the loans, writes AP.