The American Civil Liberties Union has filed suit against Morgan Stanley, alleging the investment bank discriminated against African-American borrowers by providing incentives to a subprime lender to originate high-cost and high-risk mortgages in order to profit from purchasing and securitizing those loans.

The suit — which seeks class-action status to represent as many as 6,000 black homeowners in the Detroit metropolitan area — is unusual in that lawyers for the alleged victims are suing an investment bank directly, instead of the subprime lender that originated the loans. According to the ACLU, it’s the first class-action lawsuit to connect racial discrimination to the securitization of mortgage-backed securities.

The ACLU, the ACLU of Michigan, the National Consumer Law Center, and San Francisco-based law firm Lieff Cabraser Heimann & Bernstein filed the complaint in a U.S. District Court in New York on behalf of five Detroit residents and nonprofit legal aid organization Michigan Legal Services.

The three-count suit alleges Morgan Stanley violated the federal Fair Housing Act, the federal Equal Credit Opportunity Act, and the Michigan Elliott-Larsen Civil Rights Act by pushing now-defunct New Century Mortgage Corp. to target African-American communities and borrowers in the Detroit area for particularly risky loans.

Controlling for income, loan amount and other loan features, an African-American borrower was 70 percent more likely to obtain a high-cost loan from New Century than a white borrower, according to the complaint.

"Morgan Stanley effectively dictated the types of loans that New Century issued, requiring as a condition of the companies’ lucrative business relationship that a large percentage of New Century’s loans have certain dangerous characteristics," the complaint said. "What made these loans especially hazardous for borrowers was the combination of multiple high-risk features. Though profitable for Morgan Stanley, these … loans put borrowers on a path toward default and foreclosure."

In a statement to the Associated Press, Morgan Stanley called the allegations "completely without merit" and said the company planned to defend itself "vigorously."

According to the ACLU, Morgan Stanley was New Century’s largest buyer of subprime loans. The investment bank encouraged New Century to ignore "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," the ACLU said.

Anthony D. Romero, ACLU executive director, said such practices were common throughout the financial services industry during the housing boom and that they victimized black and Latino neighborhoods nationwide.

"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," Romero said in a statement.

"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."

Earlier this summer, Wells Fargo Bank reached a $175 million settlement with the U.S. Department of Justice to resolve allegations that the bank systematically discriminated against African-American and Hispanic borrowers by steering them into riskier and more expensive subprime loans between 2004 and 2009, or charging them higher rates and fees than white borrowers.

That was the second-largest fair lending settlement in the history of the Department of Justice. The largest was a $335 million settlement reached last December with Bank of America to settle charges that Countrywide Financial Corp. and its subsidiary discriminated against more than 200,000 African-American and Hispanic borrowers by charging them higher fees and interest rates on mortgage loans made from 2004 through 2008.

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