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.

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