Morgan Stanley might take Advantage

US Financial giant Morgan Stanley is rumoured to be looking to buy Advantage Home Loans in a deal that could be announced in the next few months.

One source tells Mortgage Strategy that the deal could be finalised as soon as December, and Advantage will soon be calling in its sales team to discuss the plans.

A senior industry source says Morgan Stanley is “hungry to join the race” started by its investment banking competitors and wants to get “closer to the collateral”.

The source says: “Investment banks have decided they need to get into the origination business. Those that haven’t already made acquisitions are looking to purchase distribution or create lenders.”

Mortgage Strategy revealed in July that the bank was considering launching a UK sub-prime lender within the next six months.

Keith Dearling, founding partner at Advantage, will not comment on the Morgan Stanley rumour but says exciting times lie ahead.

He says: “As a company we have a lot happening in the next couple of months that will be exciting for us and the industry.”

A number of underwriters at Advantage have recently been replaced by processors. This has prompted industry speculation about the possibility of a lender buying Advantage.

But Dearling says: “We have recently replaced a lot of our underwriters because of the way we are processing our mortgage applications. With firms like GMAC-RFC and Platform, we use online decisions.

“More of our cases are done online now so there is less need for heavy labour by underwriters.”

There are predictions in the industry that if the Morgan Stanley deal goes through, it could intensify the price war as the new lender prices aggressively to build market share in the hope of enjoying higher returns in the long term.

But one source says: “Investment banks might need to revisit their strategies. They have a record of being ruthless pursuers of profit and they exit markets as quickly as they enter them.”

Wayne Smethurst, partner at The Finance Centre, says it will be good news for the packagers that remain in the market and maintain their independence.

He says: “Morgan Stanley made no secret of its intention to launch a lending operation in the UK. Acquiring a packager is one way to kick-start this. But once a packager is sold to a lender it loses its unique selling point.”

Morgan Stanley originates upwards of US$11bn of commercial mortgages annually and has been a global underwriter of commercial mortgage backed securities, managing more than $79bn of offerings since 1997.

When contacted, Morgan Stanley declined to comment.