“Morgan Stanley (MS.N) was ordered by a New York state judge to face part of a lawsuit in which life insurer MetLife Inc (MET.N) accused it of fraudulently selling $758 million of residential mortgage-backed securities that it knew were defective.

“While dismissing some claims as having been made too late, New York State Supreme Court Justice Eileen Bransten in Manhattan said MetLife may pursue claims that Morgan Stanley knew of underwriting defects and faulty appraisals, and pushed credit rating agencies to inflate ratings for the securities.

“Bransten’s decision is dated July 8, but was made public on Tuesday.

“In its lawsuit filed in April 2012, MetLife contended that Morgan Stanley knew that home loans underlying the securities were defective because an independent third party it had hired to conduct due diligence had found problems.”

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