Morgan Stanley Sued for Targeting Black Homeowners

In addition, it is the first case in which a prospective class of homeowners is suing an investment bank directly rather than the subprime lender whose loans the bank bought.

The lawsuit was filed by the American Civil Liberties Union, the ACLU of Michigan, the National Consumer Law Center, and Lieff Cabraser Heimann & Bernstein, a San Francisco-based law firm, on behalf of five Detroit residents and Michigan Legal Services.

The five homeowners in the suit received their loans from now-defunct New Century Mortgage Corp., a once- major player in subprime lending. As Morgan Stanley ramped up its mortgage-backed securities business starting in 2004, it became New Century’s largest buyer of subprime loans, says the ACLU.

“Morgan Stanley actively encouraged the proliferation of irresponsible subprime mortgage loans, the complaint charges, in order to feed its hunger for purchasing, pooling, and securitizing mortgage debt for sale to investors,” said Elizabeth J. Cabraser, a partner at Lieff Cabraser Heimann & Bernstein, and co-counsel for the plaintiffs, in a press release.

Rubbie McCoy, who says her mortgage broker falsified information on her loan application even though she objected, maintains that the broker also omitted critical details, including the fact that after two years, New Century would no longer pay the taxes or insurance on her loan.

“I’ve seen firsthand the devastation banks like Morgan Stanley have caused in communities like mine,” she added in the release. “When I first moved into my home, I knew every neighbor and most of the homes were occupied. Today, the majority of homes stand abandoned and stripped.”