H&R Block Inc. will close 12 branch offices of its home lending unit, Option One Mortgage Corp., and is considering putting the business up for sale.

Irvine, Calif.-based Option One originates subprime residential mortgage loans through wholesale and national accounts and through H&R Block Mortgage Corp. offices. According to H&R Block, Option One was the fifth-largest originator of subprime mortgages in fiscal 2006, with $40 billion in originations. 

But originations are down and defaults are up, and Option One has become a drag on H&R Block’s earnings, the company said. Earnings per share for the year ending April 30, 2007, are now expected to be $1.20 to $1.45, down from previous forecasts of $1.60 to $1.85.

The lower expectations are “entirely attributable to changes in the near-term outlook for the mortgage segment and does not include any impact from a sale or other transaction affecting the business,” the company said.

During the next four months, H&R Block will close one-third of Option One’s branch offices, and has hired Goldman, Sachs & Co. to explore a possible sale of the company, a move that would be subject to approval by H&R Block’s board of directors.

“Option One has generated an outstanding record of growth and profitability during H&R Block’s ownership while achieving one of the most efficient cost structures in the industry,” said Mark Ernst, chairman and chief executive officer. “As a result, it has been difficult to consider other possibilities for this business, but a potential separation of Option One would enable H&R Block to further focus management resources on its core businesses and create long-term shareholder value.”

In August, H&R Block said it was setting aside $102.1 million to cover anticipated losses on loans originated by Option One.

Show Comments Hide Comments


Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
Thank you for subscribing to Morning Headlines.
Back to top
Time is running out to secure your Connect Now tickets at the lowest price. Don't miss out on a chance to grow yourself and your business.Learn More×
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription