H&R Block Considers Sale of Struggling Mortgage Lending Enterprise

H&R Block announced yesterday that it is considering a sale of Option One, the tax preparation company’s struggling mortgage subsidiary.

Kansas City-based H&R Block said it is also mulling other alternatives for Option One, but a spokesman declined to elaborate on those potential scenarios in an interview with MSNBC.

Option One has suffered this year under the pressure of rising interest rates and an increase in default rates among borrowers. H&R Block said the subsidiary will close 12 of its branch offices in the next four months, allowing it to consolidate one-third of its home loan operations.

Option One specializes on subprime lending, which target borrowers who fall below the credit standards of a traditional mortgage lender.

H&R Block, which has seen its stock fall more than 18 percent over the past year, also revised on Monday its earnings guidance for fiscal 2007.

The company said it now expects its earnings per share for the fiscal year ending April 30 to be in the range of $1.20-1.45, down from an earlier projection of $1.60-1.85 per share. The company said the change in guidance is due to changes in the bad credit mortgage operation and does not include any effect from a sale.

A potential sale or other alternative for it’s beleaguered home loan branch would help H&R Block focus on its core tax preparation business. The company hired Goldman, Sachs & Co. to review alternatives for Option One. H&R Block’s board of directors would have to approve any proposed sale.

In September, the mortgage lender announced a first-quarter loss of $131.4 million, compared with a $28 million loss a year ago. It also has seen sued over marketing of its refund anticipation loans.