H&R Block enters deal to sell Option One Mortgage

H&R Block Inc. said it's reached an agreement to sell its subprime lending subsidiary, Option One Mortgage Corp., by Oct. 31, and plans to shut down its retail loan origination business, H&R Block Mortgage, before the sale closes.

About 600 H&R Block Mortgage employees will reportedly receive severance packages. H&R Block will continue to provide prime residential mortgage loans through H&R Block Bank, which began operations in May 2006.

H&R Block said it's agreed sell Option One to an affiliate of Cerberus Capital Management L.P. for $300 million less than the company's book value at the time the sale closes.

H&R Block could recoup some or all of the discounted sales price through a post-sale "earnout" entitling it to half the net income from Option One's origination business for 18 months after the sale. With $40 billion in originations, Option One was one of the 10 largest subprime lenders in 2006, H&R Block said.

Irvine, Calif.-based Option One's net assets were $1.27 billion as of Jan. 31. But the sale price is likely to be less because the deal gives H&R Block the right to continue selling Option One assets, including mortgage loans held for sale. Option One was servicing $68 billion in loans as of Jan. 31.

Cerberus Capital Management is a private investment firm with approximately $23.5 billion under management. The plan is for its affiliate, OOMC Acquisition Corp., to acquire Option One. Details of the planned sale were disclosed by H&R Block in a press release and a Securities and Exchange Commission filing.

H&R Block expects to report a fourth-quarter charge of $290 million to $320 million on the sale of Option One, and that the costs of winding up operations at H&R Block Mortgage will total $25 million.

All rights reserved. This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this content without permission is a violation of federal copyright law.