The loans are collateral New Century of Irvine, Calif., gave to Morgan Stanley for a $2.5 billion credit line, The New York Post reported.
Morgan Stanley announced the sale of the 13,200 loans in a small public-auction notice print ad Friday.
Bids for the loans are due by 11 a.m. EDT Thursday. At least three bidders will be selected to perform due diligence and submit final bids.
As recently as two weeks ago Morgan Stanley said the loans and repurchase agreements it made were in order.
Subprime lenders have been caught in a quickening spiral for the past several months. Rising interest rates cut into their profit margins and growing numbers of at-risk customers are having trouble making mortgage payments as the economy slows.