Did Banks Engage in Reverse-Redlining While Inflating the Housing Bubble?

A lawsuit filed this week against Morgan Stanley claims that the predatory lending practices that grew the housing bubble violated federal civil rights laws, an ironic echo of a time when housing policies prevented blacks from obtaining mortgages.

This Monday in New York, the ACLU and the National Consumer Law Center filed a 70-page lawsuit against Morgan Stanley, for its role in pushing other banks to issue large volumes of high-risk loans during the housing crisis. As a result, contends the suit, Morgan Stanley's policies effectively discriminated against blacks by targeting them for bad loans.

The lawsuit states that "black would-be homeowners were 70% more likely than white homeowners to receive a risky subprime loan from now defunct lender New Century Mortgage Company." What makes this case unique is that the plaintiff's aren't out to prove that Morgan Stanley knowingly discriminated against blacks, but rather that they were indifferent and neglectful in their policies implemented by banks such as New Century.

"What this lawsuit is saying is that these banks were adopting these policies, were profiting enormously by these policies, and they didn't care to check what impact they were having, they didn't care to check who was being hurt," says Stuart Rossman, director of litigation for the National Consumer Law Center, "What this lawsuit will hopefully establish is that they have a duty and a responsibility to do that."

Full Story: Were Big Banks Guilty of Racial Discrimination in the Housing Crisis?

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