Lawsuit alleges mortgage securitization fueled discriminatory lending

ACLU: Morgan Stanley's incentives to subprime loan originator violated fair lending laws

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.