Saxon Mortgage (Wholesale) - Wholesale & Correspondent

In a conference call today Morgan Stanley's Saxon Mortgage, once the 'King of Subprime' has left the building. The shutdown was leaked the previous week (see below). From one of the first emails we received today:

"Saxon has "exited third party originations" as of today."

We heard they told everyone to pack up their desks that today is their last day. In another email from an employee, "They did give everyone a box at least."

In a report from Reuters entitled "Morgan Stanley slashes mortgage business:"

"Morgan Stanley (MS.N: Quote, Profile, Research) on Wednesday said it will eliminate 1,000 jobs as it scales back its U.S. residential mortgage operations and closes its British residential mortgage lending business, Advantage Home Loans."

Click here (pdf) for the official announcement. We'll keep you updated throughout the day as news comes in... there's supposed to be another conference call at 12:30 pm (EST) to discuss severance packages. If you can provide us with more details, please email us. The most recent Forum discussions can be found here.

Update -- 2008-02-06: In an email received today:

Next Wednesday is February 13th. We are working on verifying this, and will report back as soon as possible if this is right or wrong... hopefully before Wednesday. Worth watching we think.

Original Post -- 2008-02-05: Will Morgan Stanley's Saxon Mortgage Inc. become a Wholesale conforming lender, or just another statistic?

As of today, their web site still shows rates (.pdf) and program highlights (.pdf) for their now drastically reduced product offering, but are they open for business?

Yes... barely. According to one AE we spoke to, there are around 65 AE's left, split between three regional offices (Saxon laid off about 200 employees in October when it closed its western Henrico County headquarters operations). While there are plans to expand the current conforming product offerings to include MyCommunity and Flex 100, as well as FHA, roll-out of these programs aren't expected until sometime in March. Until then, they are "hunkered down" to try and survive.

From a source:

"Things are eerily quiet, no update from management about the reported upcoming layoffs, and they've priced us completely out of the market. The rumor is that they will close us down this week."

Market volatility, volume and product reductions aren't the only problems Saxon's been having. There are no less than 34 outstanding civil suits pending in courts around the country (according to PACER records), and an investigation for possible FLSA (Fair Labor Standards Act) violations for overtime pay complaints posted here.

In a number of emails, we've been told November volume was only around 40 loans, and December's was less than $2 million. One tipster wrote: "Management is actively encouraging AE's to resign... it's not a pretty picture."

According to their Annual Report dated 2008-01-29, Morgan Stanley saw losses of 9.4 billion associated with "mortgage-related writedowns resulting from an unfavorable subprime mortgage-related trading strategy and the continued deterioration and lack of market liquidity for subprime and other mortgage-related instruments." Ironically, just a month prior, in a NY Times article dated 2007-11-07, it was estimated that parent Morgan Stanley would only see a write-down of between $2 and $4 billion for the 4th quarter 2007. Compare those figures to Morgan Stanley acquiring Saxon Capital for $706 Million.

"While Morgan Stanley joined the Wall Street rush into underwriting pools of securities tied to subprime mortgages, or collateralized debt obligations, in 2006 and 2007, it ranked far behind market leaders Merrill Lynch and Citigroup. Accordingly, the view has been that Morgan Stanley would not experience as big a loss. But it did get swept up in the fervor, paying $700 million in late 2006 for Saxon, a subprime mortgage underwriter so it could gain access to subprime mortgages and repackage them into complex investment vehicles."

Saxon has been cutting back on it's Wholesale programs for some time now. They announced (.pdf) to Brokers the "temporary" discontinuation of their non-prime products, ScorePlus and ScorePlus2, on 2007-11-15 - right on the tails of a 2008-11-05 announcement (.pdf) that they would be expanding their conforming product offerings. Per one tipster, "the western division office did a whopping $2MM in subprime in September." They had previously closed down their retail and correspondent channels earlier last year.

If you can provide us with more details, please email us. The most recent Forum discussion can be found here.