Anthony Painter finished two shots off the pace at 13-under-par 275. Chris Anderson was one stroke further back at 12-under-par 276.
'This is just unbelievable,' said Morgan. 'This is what we call the pinnacle of a player's career. I mean I'm leading the U.S. Tour School. What the heck is going on?'
Morgan, who has already secured his playing card for the European Tour next year, was two shots off the lead to start the day at PGA West Resort. He jumped out of the gate with three birdies over the first five holes to move into first place.
'I would assume having my European Tour card takes some pressure off,' said the Englishman. 'Everybody wants to play over here but it is nice having a place to play if you don't succeed.'
Morgan picked up a birdie at the par-5 16th to move to 16-under but dropped a shot at the very next hole. Despite the late bogey, Morgan managed to hold the lead with two rounds to play in this marathon event.
'At the moment it has been unbelievable,' said Morgan. 'I just hope it stays that way. I've just got to keep my feet on the ground and stay the person that I am and I'll be very happy.'
Laycock is another international player who has put himself in good position to earn his card on the PGA Tour. The Australian collected seven birdies and one bogey for a round of 66.
'To be perfectly honest, it's never been a huge goal of mine to play on the PGA Tour,' said Laycock. 'But the past couple of seasons I've been playing really nicely. So I thought why not try on the big stage over here and give it a go.'
Brian Bateman, James McLean, David Sutherland and Donnie Hammond finished tied for fifth at 11-under-par 277.
Mark Wilson and Barry Cheesman were two shots further back at 10-under-par 278.
Overnight leader Dean Wilson struggled with a 5-over 77 to finish in a group at 9-under-par 279.
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