Civil liberties group sues Morgan Stanley over mortgage bias

The American Civil Liberties Union is filing what it says is the first lawsuit against an investment bank, Morgan Stanley, alleging discrimination for packaging subprime mortgage loans into securities.

The ACLU and other plaintiffs will file the case on behalf of five Detroit residents and its Michigan affiliate, claiming the investment bank encouraged a mortgage lender to make loans with unjustifiably high costs and a strong possibility of foreclosure to enrich its business of selling securities to institutional investors.

"With this lawsuit, real victims of the subprime lending scandal are stepping forward to hold investment banks like Morgan Stanley accountable for the devastation the banks wrought in their lives and in our economy," ACLU Executive Director Anthony Romero said in a prepared statement.

The civil liberties group will file the lawsuit in U.S. District Court in New York, and asked the court to certify it as a class action. It said as many as 6,000 black homeowners in the Detroit area may have suffered similar discrimination.

Until now, discrimination lawsuits have been brought directly against the original mortgage lenders rather than investment banks that packaged the loans into securities, the ACLU said.

The case, Beverly Adkins et al v Morgan Stanley, was also brought by the ACLU's Michigan affiliate, the National Consumer Law Center and Lieff Cabraser Heimann & Bernstein, a San Francisco-based law firm.

A Morgan Stanley spokeswoman said the company had no immediate comment on the filing.

(This version of the story has been corrected to change word to "unjustifiably" in second paragraph)

(Editing by Maureen Bavdek)