The lawsuit, which seeks class-action status, was filed Monday by the American Civil Liberties Union and others on behalf of five Detroit residents and Michigan Legal Services.
The five homeowners in the lawsuit received their loans from subprime lender New Century Mortgage Corp., which has since collapsed.
The lawsuit claims Morgan Stanley (MS) pushed New Century to issue certain types of loans with no concern about risk, because it made its profit at the outset when the investment bank bundled the loans into securities and sold them.
An email was sent to Morgan Stanley seeking comment but there was no immediate response.
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