Politics

Did Wall Street Engineer Detroit's Mortgage Crisis?

January 25, 2015, 12:14 AM

Is Wall Street the culprit that sparked a foreclosure crisis that devastated the city during the Great Recession?

Newly disclosed e-mails and documents give the clearest evidence yet that high-level banking officials pushed subprime mortgage loans knowing some Detroiters couldn't pay them, John Gallagher reports in the Free Press. And that sparked a foreclosure crisis in Detroit.

The new documents were revealed in a potential class action by African-American Detroit homeowners against Morgan Stanley, one of the nation's largest Wall Street investment firms. The lawsuit, Adkins et al vs. Morgan Stanley, alleges the high-risk loans in 2004-07 were racially discriminatory because they "disproportionally impacted" thousands of metro Detroit black borrowers.

Lawyers for five Detroit plaintiffs say the internal bank documents show officials encouraged New Century, a now-bankrupt lender, to push the loans and that Morgan Stanley ignored its normal credit standards so it could pool the mortgages as investments for lucrative fees. The lawsuit seeks unspecified damages.

A Morgan Stanley spokesman declined to comment on the lawsuit, which was filed in 2012. But in its written responses to the suit, the firm denies backing racially discriminatory predatory loans. Morgan Stanley has already agreed in settlements with U.S. government regulators to pay about $1.5 billion for its role in the larger subprime scandal.


Read more:  Detroit Free Press


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