On Thursday morning Morgan Stanley will hold a public auction of $2.48 billion in mortgages originated by ailing subprime giant New Century Financial Corp.A source familiar with the matter said Morgan believes it has the legal right to the loans because NCFC is in default on its warehouse covenants. (Morgan is one of several warehouse lenders that recently informed NCFC that they no longer will fund its production.) Morgan is auctioning off the loans "as is" with no representations and warranties. Morgan had originally committed $2.5 billion in warehouse lines to NCFC. The source said Morgan is holding a "clean auction" in order to establish a value for the mortgages in anticipation of a "pre-packaged" bankruptcy sale of NCFC. Late last week NCFC said it will realize a $46 million loss on a deal struck with Barclays Bank PLC to settle $900 million in buyback/financing claims. NCFC, which is no longer funding loans, has been delisted by the New York Stock Exchange. It is the subject of criminal and civil investigations.

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