Mortgage Lender Sale Delayed By H&R Block

H&R Block won’t meet its self-imposed March target for a deal to sell its Option One Mortgage Corp. operation because of weakness in the bad credit mortgage (subprime) market, the company said Friday.

The company said back in November it planned to sell its troubled mortgage lender division by March. But Friday it announced that it still is trying to negotiating a sale.

“Subprime” lending provides money to people with questionable credit, and a rise in home mortgage loans defaults has caused myriad problems for many of these major lenders.

Late last month, H&R Block CEO Mark Ernst, told reporters he still expected to get at least $1.3 billion for Option One and predicted he would have an announcement by the end of March.

He repeated that timeline two weeks ago. But the problems in the bad credit mortgage loan industry, and for Option One, have continued to escalate.

On March 14, the mortgage company increased its previously announced third fiscal quarter loss by $15.5 million to a total of $60.3 million.

The larger loss reflected a $29.2 million cut in the carrying value of its mortgage business.

The company also said it didn’t expect Option One to meet minimum profit levels required by its lenders, forcing it to request further waivers.

A few days later, a group of those lenders lowered the amount of funding for Option One to make home loans from $4 billion to $2 billion.

Analysts have predicted that H&R Block would have trouble selling Option One in such a turbulent environment, especially as other bad credit home loan providers cut back on the number of loans they’re making.

“The non-sale is disappointing; we think (Block) has lost credibility by waiting to the last minute to confirm what many thought,” said Michael Millman of Soleil Securities/Millman Research.

Millman said he still believed the company had value in its tax business and, at least in the long term, its mortgage business. But such a delay could bring big changes in management or even a sale of the company.

SOURCE: Houston Chronicle