Wall Street's Predatory Mortgages in Detroit

July 14, 2016

In 2012 the ACLU filed a groundbreaking class action on behalf of African American Detroit homeowners against the Wall Street bank Morgan Stanley for its role in shaping the high-risk predatory loans that contributed to the foreclosure crisis and the collapse of once-vibrant Detroit neighborhoods. 

The ACLU represents five African American homeowners who are facing foreclosure due to the risky and abusive loan terms they received through the now-bankrupt subprime lender New Century. 

Between 2004 and 2007, Morgan Stanley purchased loans from New Century and, as its most significant customer, shaped New Century’s lending irresponsible and destructive practices.  By 2007, Detroit was number one of the hundred largest metropolitan areas with the highest foreclosure rates.  Nearly 45,000 homes stood vacant by 2008, creating virtual wastelands in Detroit. 

Moreover, this devastation had a clear racial character: New Century’s African American customers in the Detroit area were 70 percent more likely to get a subprime loan than white borrowers with similar financial characteristics. 

The lawsuit is the first of its kind, brought on behalf of homeowners, seeking to hold a Wall Street bank accountable under the Fair Housing Act for the devastation to communities of color.  In July 2013 Morgan Stanley’s motion to dismiss the case was denied, allowing the ACLU to proceed with our claim under the Fair Housing Act.  After engaging in extensive discovery, the ACLU filed a motion in June 2014 to certify a class of approximately 6,000 African American homeowners in Detroit who obtained predatory New Century Mortgages. 

Unfortunately, in May 2015 the trial court denied the motion for class certification, and in July 2016 but the Court of Appeals affirmed.  The case on behalf of the named plaintiffs continues. 

(Adkins v. Morgan Stanley; attorneys include Brooke Tucker, Sarah Mehta and Michael J. Steinberg of the ACLU of Michigan; Larry Schwartztol, Dennis Parker and Rachel Goodman of the National ACLU; Stuart Rossman of the National Consumer Law Center; and Elizabeth Cabraser of Leif Cabraser Heimann & Bernstein.)

To view the full 2014-2015 Legal Docket, click here.