NEW YORK (Reuters) - Morgan Stanley will slash 1,000 jobs, scale back its U.S. residential mortgage operations and shut down British home lending unit Advantage Home Loans as new management takes a hard look at the continued deterioration in mortgage markets.

The cuts will effect employees that engaged in wholesale and correspondent mortgages, generating loans through brokers and other third parties. The company said the moves also mean undisclosed reductions in people who packaged these loans into bonds that could then be sold and traded.

Morgan Stanley is closing its British mortgage origination business, but will continue servicing through its Morgan Stanley Mortgage Servicing Ltd unit.

A year after investment banks first revealed that a housing slump was leading to subprime mortgage losses, the market for mortgage-backed securities remains effectively frozen. As a result Wall Street firms, which built up home lending businesses that could feed their securitization activities, have no place to sell these assets.

Rather than get stuck holding these loans, banks like Morgan Stanley and Lehman Brothers have been cutting back on loan production.

Spokesman Mark Lake said many of the people being cut will be informed today. The company expects costs related to these moves will be immaterial and declined to elaborate where cuts were made.

The cuts come about two months after co-President Zoe Cruz was forced out for her role overseeing a debt capital markets business that suffered billions of losses from an ill-conceived bet on mortgages. The firm shook up management of the investment banking and trading business, leaving Michael "Mitch" Petrick in charge of all securities trading.

Morgan said it will continue to service mortgages — which means sending bills and collecting payments for loans — in the United States through Saxon Mortgage Services.

The bank also will still sell residential mortgages to its brokerage clients through Morgan Stanley Credit Corp.

Morgan Stanley joins well over 100 mortgage lenders that have slashed jobs or gone out of business in the last year as the U.S. housing crisis deepened and credit conditions worsened.

The move also represents an about-face for Morgan Stanley, which expanded its mortgage business after John Mack took over as chief executive in June 2005. At the time, mortgage underwriting and trading was a profit engine for Wall Street, and banks scrambled to close the gap against leaders like Lehman Brothers and Bear Stearns.

Morgan acquired Advantage Home Loans in December of 2005 and then bought Saxon Capital Inc, a residential lender and servicer, for $706 million in December 2006.

Lake, the Morgan spokesman, would not disclose how many people worked in Morgan's mortgage businesses. Mortgage Stanley Credit Corp will employ about 100 people after the cuts.

Company-wide, Morgan Stanley had 48,256 employees.

(Reporting by Jonathan Stempel and Joe Giannone; Editing by Tim Dobbyn)

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