Decade of Morgan Stanley controversy deepens with racial discrimination suit
by Broderick Perkins
It's Morgan Stanley's turn to get slapped with a mortgage-related discrimination suit and it's a doozy.
The American Civil Liberties Union (ACLU) and others filed the landmark suit Sept. 15 in the U.S. District in Manhattan as the first suit of its kind to connect bundling mortgage-backed securities with racial discrimination.
It is also the first case where a prospective class of victimized homeowners is suing an investment bank directly rather than the predatory subprime lender whose loans the bank acquired.
Under review for class action status, the suit alleges Morgan Stanley pumped money into the now defunct New Century Mortgage Corp. in order to originate toxic subprime mortgages that came with predatory terms dictated by Morgan Stanley.
Morgan Stanley ultimately purchased the loans for pools of mortgage securities and later profited from their sale, the suit alleges.
As many as 6,000 black homeowners in the Detroit area were targeted with the loans, according to the suit which the ACLU filed along with the ACLU of Michigan, the National Consumer Law Center, and Lieff Cabraser Heimann & Bernstein, a San Francisco-based law firm. The group initially filed on behalf of five Detroit residents as well as Michigan Legal Services.
"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 Anthony D. Romero, ACLU executive director.
The case focuses on Detroit, but studies report racial discrimination was rampant throughout the financial services industry during the housing boom. Nationwide, Latinos, along with blacks, were frequently singled out to be victimized.
"Illegal practices surrounding mortgage-backed securities robbed people of their homes, violated our civil rights laws and left all Americans holding the bag as our economy teetered on the brink of another Great Depression," Romero said.
True to form, the defendant issued a statement of denial.
"We believe these allegations are completely without merit and plan to defend ourselves vigorously," the firm said in a statement.
A 75-year old financial services company Morgan Stanley required $107.3 billion in government support to survive the economic recession and has since fled some risky trades and businesses from hedge-fund management to owning an Atlantic City, N.J., casino. It recently reported a $1 billion third quarter loss.
The company's rich history includes a recent past steeped in controversy, from regulatory and supervisory lapses, fraud, sex discrimination, and unfair labor practices to unauthorized commodities trades entered by an intoxicated trader, insider trading and using the 911 terrorists' attacks (claiming documents were lost in the World Trade Center rubble) to win arbitration hearings.
Earlier this year the Federal Reserve announced a consent order against the firm for "a pattern of misconduct and negligence in residential mortgage loan servicing and foreclosure processing," regarding its Saxon Mortgage Services, Inc. subsidiary.
More recently, Morgan Stanley faces lawsuits and government investigations surrounding the Facebook IPO Fiasco which cost the social networking company 22 billion big ones.
The obvious rhetorical question is "How do you think they got so rich?"
The ACLU suit, "Adkins, et al. vs. Morgan Stanley," says Morgan Stanley violated the Fair Housing Act, which prohibits discrimination concerning the sale, rental, and financing of housing based on race, religion, national origin, sex, (and as amended) handicap and family status.
"The targeting of communities of color for loans that unfairly raises the risk of default and foreclosure is the quintessential 'reverse-redlining' outlawed by the Federal Fair Housing Act," said Elizabeth J. Cabraser, a partner at Lieff Cabraser Heimann & Bernstein, and co-counsel for the six plaintiffs, including five Detroit residents.
New Century Mortgage Corp., once a major player in subprime lending, wrote mortgages for the five homeowners in the suit. Morgan Stanley ultimately became New Century's largest subprime loan buyer, according to the suit.
Rubbie McCoy, named in the suit, still has her home, but she hasn't be able to make a payment on her mortgage since 2011. That's because of soaring costs the lender never disclosed and, ignoring McCoy's protests, the broker falsified information to make the loan fly.
"I've seen first hand the devastation banks like Morgan Stanley have caused in communities like mine. 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," McCoy said.
"I don't like to say that I am losing my home, instead I tell my family that I'm fighting for my home. The truth is I'm afraid that today will be the day a sheriff kicks us out. No one should live with this fear," she added.
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