Yet another lawsuit has been filed against the “big banks” in relation to the lending standards and practices employed by the companies leading up to the housing market crash. What seperates this case from others is the fact that this is the first case brought by homeowners (not government) against an investment bank.
The allegation that the ACLU (American Civil Liberties Union) is making, is that Morgan Stanley encouraged sub-prime lender New Century Financial to originate high-risk “junk” mortgages in predominantly African American neighborhoods (in Detroit).
This, should it prove to be true, would constitute a violation of the discriminatory lending laws by which all lenders must abide.
Mary Claire Delaney (Executive Director of Morgan Stanley) told reporters “We believe these allegations are completely without merit and plan to defend ourselves vigorously.”
Yet the ACLU insists that “Hoping to realize large profits from the securitization of extremely risky mortgages, Morgan Stanley worked hand-in-glove with New Century, encouraging it to issue mortgages that ignored 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,”
Furthermore, they are claiming that Morgan Stanley not only incentivized New Century’s efforts to write as many sub-prime discriminatory mortgages as possible, but that they also partly funded the effort to write the high-risk mortgages.
The plaintiffs in this class action lawsuit are African Americans who are essentially claiming that the investment bank, and the lender through which they worked, targeted them with loans that were at high risk of default and foreclosure.
The Executive Director of the ACLU, Anthony Romero, told reporters in a conference call that “by no means was Morgan Stanley the only actor in the sub-prime debacle.” and that had the government properly handled the behavior of the banks then further litigation would not have been necessary; yet he contends that enough was not done and that Morgan Stanley is merely the beginning…
Check back for updates as this case unfolds.
-JJM
John is the Vice President here at JohnHart, and as such is responsible for managing and directing the firm towards obtaining its ultimate goals.
He is also one of our main contributors on the Blog. (please see his profile page on the main site for more information.)
