Today, the ACLU (along with the National Consumer Law Center ) filed a class action suit against Morgan Stanley on behalf of African American homeowners in Detroit, Michigan. The complaint alleges that Morgan Stanley’s policies and practices enabled and encouraged predatory lending by the (now bankrupt) New Century Mortgage Company, that disparately impacted African American borrowers in and around Detroit, and violated the Fair Housing Act and the Equal Credit Opportunity Act.

The complaint describes New Century as “among the most notoriously predatory of the subprime lenders” operating between 2004 and 2007, with Morgan Stanley as its principal financer.  But, the complaint alleges, Morgan Stanley “went well beyond the role of passive consumer or conventional securitizer” of the New Century loans:

Morgan Stanley provided crucial funding to New Century that facilitated New Century’s ability to make mortgage loans. 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. What made these loans especially hazardous for borrowers was the combination of multiple high-risk features. Though profitable for Morgan Stanley, these Combined-Risk Loans put borrowers on a path toward default and foreclosure. Pursuant to this arrangement, New Century – at Morgan Stanley’s direction issued large volumes of Combined-Risk Loans during the relevant time period, including thousands of these loans to borrowers in the metropolitan Detroit area. In order to satisfy Morgan Stanley’s demand for loans it could pool and securitize, New Century targeted African American communities and borrowers in the Detroit area.

The case has been assigned to Judge Baer.