Morgan Stanley Sued Over Risky Loans to Black Home Buyers

Morgan Stanley (MS) was accused in a race-bias lawsuit of urging a home lender to target black borrowers with high-risk mortgages so the bank could profit from buying and securitizing the loans.

Five black Detroit-area homeowners sued Morgan Stanley today in New York for violating civil-rights laws covering housing and credit. They claim the bank encouraged New Century Financial Corp. (CYFL), the bankrupt mortgage company, to make “combined-risk loans” to borrowers who couldn’t pay.

“Though profitable for Morgan Stanley, these combined-risk loans put borrowers on a path toward default and foreclosure,” the plaintiffs said in a complaint filed in federal court in Manhattan.

The plaintiffs seek to represent thousands of black borrowers in the Detroit area who received the combined-risk loans from New Century from 2004 to 2007. They seek unspecified damages, an injunction against Morgan Stanley and a monitor to ensure the bank complies with any court orders.

“These allegations are completely without merit,” Sandra Noonan, a spokeswoman for Morgan Stanley, said in an e-mailed statement. The bank will fight the claims, she said.

The case is Adkins v. Morgan Stanley, 12-cv-7667, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in New York at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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