by Brian Mahany
The nation’s big banks have received their fair share of bad press lately. Almost every day is a new horror story involving Bank of America, Chase, Citibank, Wells Fargo and Morgan Stanley. Today is no exception. The ACLU announced it sued Morgan Stanley for violating the Fair Housing Act and Equal Credit Opportunity Act. The suit was filed in New York.
The suit concerns loans originated by New Century Mortgage, a now defunct lender that made inner city and no income verification loans. New Century was one of thousands of mortgage lenders and brokers that failed after the housing bubble burst.
The ACLU’s suit is certainly novel in its approach. Because New Century was broke and went out of business, homeowners with claims against them have a difficult road. The ACLU claims that Morgan Stanley essentially dictated New Century’s lending practices by buying more of its loans than any other company.
To win this case, the American Civil Liberties Union will have to prove that Morgan Stanley encouraged or induced New Century to make bad loans. They claim that Morgan Stanley wanted to buy as many loans as quickly as possible and sell them to others; sell them before they collapsed.
Many of New Century’s loans were “stated income” loans meaning the lender did not require income verification. The bank essentially relied on whatever the borrower stated for income. Often it isn’t the borrower that lies in these type loans, its the broker hoping to make a quick commission.
According to the complaint, in one case a broker falsified a loan application for an inner city woman in Detroit and tripled her income. He also told the mother of six that they would be evicted if she didn’t complete the purchase of the home. The initial interest rate was a huge 12.1% and because it was adjustable, immediately began increasing. Of course, the woman was not able to make payments.
The ACLU says that in some places like Detroit, a black borrower was 70% more likely to receive a high interest, subprime loan than an identical white borrower in the same area. As noted above, if true, the homeowners and ACLU still have a tough case against Morgan Stanley. They must prove that the banking giant was responsible for New Century’s bad lending practices.
The ACLU is representing the homeowners stuck with these subprime loans. Investors in the bad paper should have an easier case against Morgan Stanley. That is likely the next lawsuit to be filed. Just more bad press for the banks that are “too big to fail” and in our opinion, “too big to care.”
Morgan Stanley issued a statement calling the lawsuit “completely without merit.”
The bank and mortgage fraud lawyers at Mahany & Ertl have helped many homeowners with claims against lenders. If you believe you were the victim of an improper or wrongful foreclosure or denial of loan modification, give us a call. No bank is too big for us.
Mahany & Ertl – Giving Homeowners A Voice. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine and Minneapolis, Minnesota.