Judge Approves Suit Tying Morgan Stanley to Toxic Lending in Detroit

July 26, 2013
Reuters 
mortgage lending news

U.S. District judge Harold Baer in New York has approved a bias lawsuit that accuses Morgan Stanley of encouraging subprime mortgage lender New Century Mortgage Company to target black homeowners in Detroit. In the ruling, Baer drew a connection between predatory lending before the 2008 financial crisis and Detroit's recent bankruptcy petition. The plaintiffs in the lawsuit include five black homeowners in Detroit who allege that Morgan Stanley gave the subprime lender incentives to issue loans that were likely to go bad. The bank is said to have routinely purchased subprime loans and pooled them into securities to be sold, providing funding that kept New Century in business until it filed for bankruptcy in 2007. "These high-risk loans as opposed to better loans or even no loan at all caused Plaintiffs a concrete injury," Baer wrote in his ruling. The decision allows the plaintiffs to proceed with their claims under the Fair Housing Act. Baer did dismiss claims that the plaintiffs had brought under the Equal Credit Opportunity Act and Michigan's Elliot-Larsen Civil Rights Act.

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