Remember how the NY Attorney General filed a lawsuit against JP Morgan Chase a few weeks ago? And then how last week the US Attorney General in Manhattan began suing Wells Fargo for discriminatory lending leading to major government losses? Well, in continuation of this thrilling theme, the ACLU announced Monday that it will be filing a lawsuit against Morgan Stanley for violating the Fair Housing Act and the Equal Credit Opportunity Act. In a comedy writing class, I learned the “rule of three” – one time something happens, cool. A second time something happens, interesting but probably coincidental. The third time it happens shows a pattern. And there’s nothing we at UHAB love more than a pattern of holding banks accountable for their harmful impacts on communities.
Jessica Silver Greenberg of the NY Times reports that:
In the lawsuit, filed on Monday, the A.C.L.U. claims that Morgan Stanley is culpable for predatory loans made through the New Century Financial Corporation because the investment bank lent billions of dollars to New Century, a now-defunct subprime lender, and pressured it to make troublesome loans to African-American borrowers who could not afford them…
The bank, according to one former employee, typically did not require New Century to conduct a second appraisal of homes, fearing that the second look would result in a lower assessment and prevent the loans from being securitized, the suit says.
The lawsuit, unlike the others recently filed, is on behalf of five black people from Detroit who ran into debt trouble almost immediately after borrowing from New Century. If this case ends up turning into a class-action suit, there are thousands more willing to participate.
The term that is being used to describe Morgan Stanley and New Century’s practices is “reverse red-lining.” Reverse red-lining occurs when a lender targets minority consumers with expensive and sub-part loan products. Instead of refusing to rent or sell homes on the basis of race, reverse red-lining is the aggressive risky lending to people on the basis of race, leading to disastrous impacts.
In this case, Morgan Stanley encouraged New Century to make a high volume of risky loans. This practice temporarily increased revenue for Morgan Stanley; it ended with New Century to filing for bankruptcy. The ACLU reports:
Nearly 8-percent of both blacks and Latinos who took out mortgages recently have lost their homes to foreclosure. Only 4.5-percent of whites did.
This case not only sheds light on discriminatory practices that led to the housing crisis and recession, but also sheds light on how race functions in the United States. It is especially interesting given the unique location of Detroit (us geography enthusiasts live for this). In terms of race, the ACLU is claiming that Morgan Stanley has acted in violation of the Fair Housing Act. In a wonderful article published at Atlantic Cities, Emily Badger writes that:
The federal Fair Housing Act, however, says that banks can’t have policies that lead to a disparate impact on minorities. This means, in practice, that a policy may effectively discriminate against blacks even if it never explicitly mentions “minorities,” “blacks” or “race.”
The framing of racism in Fair Housing is extremely on point with tracking racism in our country. Race and racism is rarely explicit, but has real impacts on communities and the ways that cities and suburbs have grown (or shrunk in the case of Detroit). For example, policies like Stop and Frisk are never to explicitly implemented to incarcerate high numbers of youth of color, but that’s the impact and therefore what’s important.
It’s so uniquely fascinating that the case is out of Detroit, a place so quintessential of American crises throughout history and with such stark and obvious demonstration of how those crises are tied into race. When white flight drove white people and resources to the suburbs, who stayed? When the auto-industry collapsed, who was left jobless? And today, which communities are so drastically and disproportionately impacted by the housing crisis? We’re not here to give a history lesson on Detroit, so suffice to say that Detroit has been a pivotal location for numerous racial conflicts, from red-lining to race riots to Civil Rights and on and on.
We plan to stay tuned to this lawsuit as it unfolds. I wonder who will get sued next week…