An advocacy group for low-income housing on Monday accused Morgan Stanley of discriminating against minority borrowers seeking mortgages.
The National Community Reinvestment Coalition said it filed a civil rights complaint asking the Department of Housing and Urban Development and the Securities and Exchange Commission to investigate if Morgan Stanley used the practice of red-lining when considering mortgage applicants.
Red-lining is a discriminatory practice through which banks and other financial institutions refuse or limit loans, mortgages, insurance and other services, often to minorities in inner cities.
The complaint named the Wall Street bank and some of its subsidiaries, including Saxon Mortgage Inc., which Morgan Stanley acquired in December 2006. It seeks to stop Morgan Stanley from selling, buying or participating in any pooling and services agreements involving mortgage underwriting.
The housing coalition said the role that Wall Street plays in providing liquidity to the housing market is biased and unfair to minorities and financially vulnerable consumers.
Morgan Stanley and Saxon intentionally structured underwriting to deny homeownership to qualified African-American, Latino and other minority applicants, said John Taylor, president of the coalition.
Morgan Stanley said it was reviewing the complaint.
The mortgage lending policies of Morgan Stanley and its affiliates do not discriminate on the basis of race or national origin, bank spokeswoman Jennifer Sala said. We are confident the allegations will prove meritless.
The SEC does not directly regulate the origination and sale of mortgage loans, but it does regulate securitized vehicles backed by mortgages that are mostly sold to institutional investors.
The housing coalition's complaint was filed last Thursday and made public on Monday.
HUD spokesman Steve O'Halloran said the complaint had been received and was being evaluated. An SEC spokesman declined to comment.
Worldwide credit markets have been shaken in recent months by a sharp rise in U.S. home mortgage delinquencies involving subprime, or less creditworthy, borrowers. In some cases, subprime loans made a year or more ago are resetting at significantly higher interest rates than consumers realized.
The U.S. House Financial Services Committee this month approved a bill that would give two U.S banking regulators more power to police unfair and deceptive loan practices.
The housing coalition includes more than 600 state and local organizations such as the Catholic Migrant Farmworker Network, the Detroit Alliance for Fair Banking, and the National Congress for Economic Development.