August 9, 2007 / 8:37 PM / 12 years ago

Morgan Stanley's Saxon maneuvers to boost subprime

By Al Yoon

NEW YORK, Aug 9 (Reuters) - Morgan Stanley’s Saxon Mortgage Inc. is expanding its presence in subprime mortgages, capturing borrowers turned away by skittish lenders and taking business from rivals that abandoned the struggling market, account executives said.

Saxon representatives on Thursday moved to assure brokers that Morgan Stanley (MS.N) is a strong backer and is giving business won from other lenders first priority, according to an e-mail obtained by Reuters. Saxon is maintaining most loan products as other lenders nix theirs, giving it a leg-up in a market where borrowers are getting desperate to refinance.

“We are still here now and are very willing to help you with any fallout loans you have had from previous companies — they get top billing at the Ops Center and we can get them moved through ASAP,” the note said.

Saxon’s rates have increased but mortgage offerings have “stayed pretty much the same,” it said.

Saxon’s strategy to get a competitive edge on the subprime business where losses are causing upheavals in global financial markets compares with other lenders that have sought to reduce their market share. Washington Mutual Inc. (WM.N) purposely reduced its market share in 2007, and would be “very cautious” about trying to take it back soon, David Schneider, president of WaMu’s home loan division, said in a recent interview.

Subprime loans have grown to more than 14 percent of the U.S. mortgage market, up from 2.4 percent in 1998, according to the Mortgage Bankers Association. Subprime originations have fallen by more than a third in 2007 as the housing slump persists and lenders tighten guidelines.

Morgan Stanley Chief Financial Officer David Sidwell in June said mortgages were an area “firms have to stay focused on” despite revenues falling in the second quarter from the first. Record results in Morgan Stanley’s investment-banking and trading businesses boosted the firm’s profit.

Maintaining subprime loan programs may be helpful for subprime customers who need to refinance at least $335 billion in loans whose payments are set to jump this year and next, analysts said. That would alleviate some concern that subprime borrowers who obtained the adjustable-rate mortgages in 2005 and 2006 would find loan programs too strict, and default.

Saxon is offering financing for up to 90 percent of a home’s value to borrowers who want to “state” rather than prove their income, according to the e-mail. Some big lenders have reduced financing on the same type of loan to 80 percent.

“Every day we’re more inundated with pre-qualifications as my competitors are falling off the face of the earth,” said Deborah Cox, a Saxon account executive in Tampa, Florida. “We are going to be one of the last standing.”

The company is considering expanding into prime and commercial loans later this year, she said.

((Reporting by Al Yoon, editing by Neil Stempleman; Reuters Messaging: albert.yoon.reuters.com@reuters.net; Email: albert.yoon@reuters.com; +1 646-223-6347)) Keywords: USA SUBPRIME/MORGANSTANLEY

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